Income Tax Appellate Tribunal - Delhi
Jindal Steel & Power Ltd., New Delhi vs Acit, Hisar on 29 April, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE 'I-1', NEW DELHI
Before Sh. Bhavnesh Saini, Judicial Member
And
Sh. N. S. Saini, Accountant Member
ITA No. 893/Del/2014 : Asstt. Year : 2009-10
Jindal Steel & Power Ltd., Vs Asstt. Commissioner of
Jindal Centre, 12, Bhikaji Cama Income Tax, Hisar Circle,
Place, New Delhi-110066 Hisar
(APPELLANT) (RESPONDENT)
PAN No. AAACJ7079D
Assessee by : Sh. Salil Kapoor, Adv.,
Sh. Sumit Lal Chandani, Adv.,
Ms. Ananya Kapoor, Adv. &
Ms. Pallavi Saigal, Adv.
Revenue by : Sh. Sanjay I. Bara, CIT DR
Date of Hearing :05.03.2019 Date of Pronouncement : 29.04.2019
ORDER
Per N. S. Saini, Accountant Member:
Thi s i s an appeal filed by the assessee agai nst the orde r of Assessi ng Offi cer u/s 143(3)/144C(13) of the Income Tax Act, 1961 dated 29.10.2018 for assessment years 2013-14
2. Ground No. 1 of the appeal of the assessee reads as under:
"1. That on the facts and circumstances of the case, the impugned assessment com pleted vide order dated 16.01.2014 under section 143(3) read with section 144C of the Income-tax Act, 1961 ('the Act'), is illegal and bad in law.
1.1 That the assessing officer e rred on facts and in law in completing the impugned assessment at an income of Rs. 1322,13 ,35,445 a gainst income of Rs.2 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
1006,66,79,810 decla red by the appellant in the return of income for the relevant assessment year.
1.2 That the Dispute Resolution Panel ('DRP') erred on facts and in law in affirming the draft assessment orde r by passing a cryptic and n on-speaking order, without judiciously conside ring t he entire material and the submissions/ obje ctions filed by the appellant."
3. At the ti me of heari ng, the Authori zed Representati ve of the assessee submi tted that thi s ground of appeal i s general i n nature and do not requi re separate a djudi cati on by us. Therefore, the same i s di smi ssed.
4. Ground No. 2 of the appeal of the assessee reads as under:
"2. That the assessing officer/ DR P erred on facts and in law in reducing the deducti on claimed by the appellant under section 80-1A of the Act from Rs.4,19,30,71 ,772 to Rs.2,52,62 ,31,398.
2.1 That the assessing officer/ DRP erred on facts an d in law in holding that the rate a t which power wa s supplied by appellant t o State Electricity Board ('SEB'), i.e . Rs.2 .3336 per unit, was the market rat e of powe r for pu rposes of compu tation of deducti on under section 80IA of the Act."
5. The Assessi ng Offi cer observed t hat from the perusal of the i nformati on pl aced on record by the assessee, it is observed that the assessee has ta ken rate of power i n case of suppl y to i ts uni ts @ 3.9227 per unit on the l ogi c that the same rate i s charged by SEB f or suppl yi ng power to the Industri al consumers. However, the power suppli ed by el ectri ci ty board t o the Indust ri al consumers i ncl udes the cost due to l osses i n transmi ssi on and di stri buti on whi ch are quite hi gh in case of Indi an condi ti ons. The sai d cost ingredi ents are 3 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
absent i n the case of the assessee company. The assessee had suppli ed power t o i ts own consti tuent uni ts wi thout i ncurri ng any expendi ture i n putti ng up transmi ssi on and di stri buti on network. For suppl y of power to limi ted customers l ocated near power generati on facili ty, state wide di stri buti on system i s not requi red. Moreover, there i s hardl y any transmi ssi on l oss i n the case of assessee, whi ch comes to al most 20% i n the case of state el ectri city board. Thus the powe r ta ri ff charged by SE B from the common consumers coul d not be compa red wi th the power tari ff charged by a ssessee for suppl yi ng power to i ts- own consti tuent uni ts because the cost i ngredients like cost of transmi ssi on were absent in the case of the assessee. Secondl y, there was no cost of coll ecti on i n the case of the assessee whil e the SEB had to mai ntai n full -fl edged Department and accounti ng system for coll ecti on of el ectri ci ty, charges from the common consu mers spread over the enti re l ength and breadth of the state. In addi ti on the coll ecti on charges for el ectri ci ty bill s are al so to be pai d to the bankers. Thus the cost of power suppl y by the state el ectri ci ty board t o the common consumers entail s enorm ous cost whi l e the aforementi oned addi ti onal cost i ngredi ents are absent i n the case of assessee that i s the reason why the power tari ff of the SEB cannot be compare d wi th that of the power tari ff suppli ed by the assessee to i ts own consti tuents units. In vi ew of above compl exi ti es, I am of the opi ni on that it i s necessary to i nvoke provi si ons of secti on 80IA(8) whi ch deal s with determi nati on of val ue of goods or servi ces by the Assessi ng Offi cer is reproduced as unde r:-
"Where any goods or se rvices hel d for the pu rpose of the eligible business are transf erred to any other 4 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
business carried on by the assessee, or where any goods or services held f or the purpose of any othe r business carried on by the assessee are transferre d to eligible business and, in either case, the consideration, if any, for such tra nsfer as recorde d in the accounts of the eligible business does not correspond to the market value of such goods or services as on the date of transfer, then, for the purpose of the deduction under this section, the profit and gains of such eligi ble business shall be computed as if the transfer, in either case, has been made at the market value of such goods or services as on that date.
Provided that where , in the opinion of the Assessin g Officer, the computation of the profits and gains of the eligible business in the mann er herein bef ore , specified, presents exceptional difficulties the Assessing Officer may compute such profits and gains on such reasona ble basis as he may deem fit.
6. He further observed that i t may be poi nted out that the expl anati on onl y requi res to fi nd out the pri ce at whi ch the goods woul d ordi naril y fetch i n the open market. Here the word ordi nari ly i s most i mportant i .e. to the extent the market i s avail abl e, in ordi nary si tuati on, the market pri ce has to be worked out. If the extra ordi nary si tuati ons are there and the 'open market ' i s not that open, i f compa red wi th the devel oped countri es, and open market i s l esser open, i t woul d not mean that the market val ue i s not there.
7. He opi ned that, i t woul d have to depend what pri ce i s avail abl e to an i ndependent undertaki ng havi ng sol e busi ness of powe r generati ng. It i s comm onl y known that Indi a i s a power defi ci ent country. As per the Electri ci ty Act, 2003, Central El ectri city Authori ty (CEA) has been establ i shed for techni cal coordi nati on and supervi si on of programmes. As pe r 5 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
web-si te of CEA (www.cea .ni c.in), the posi ti on of revi sed tari ff (as on 1st Jul y 2012) i n case of Uttra Mega Power Project s (UMPP) awa rded through tari ff ba sed competi ti ve bi ddi ng i s as under:-
PROJECTS AWARDED THROUGH TARIFF BASED
COMPETITIVE BIDDING ROUTE ( AS ON 1ST JULY,
2012)
Name of the Project and Name of the Levelised Tariff
Date of LoI
capacity as per LoI successful Bidder (Rs/KWH)
MUNDRA (5x800 MW) M/s Tata Power 28.12.2006 2.26
Ltd.
(Gujarat)
SASAN (6x660) M/s Reliance Power 01.08.2007 1.2
(Gujarat) Ltd.
KRISHNAPATNAM M/s Reliance Power 30.11.2007 2.33
Ltd.
(6X660) (Andhra
Pradesh)
TILAIYA (6X660) M/s Reliance Power 12.02.2009 1.77
Ltd.
(Jharkhand)
8. He noted that rate whi ch i s determi ned by competi tive bi ddi ng coul d be sai d to be the rate i n open market. Quanti ty of powe r generated by the assessee i s mi nuscul e as 'compa re d to these UMPPs', hence, assessee i s bound to be compul sory sell er in the market. Therefore , h e i s bound to get much l ower rates than these UMPPs. We are consi deri ng rates i n fi nanci al year 2008-09 i n whi ch rates are bound t o be l ower than th e above menti oned rates (whi ch are as on 01.07 .2012). Therefore, i n my opi ni on, rate offered to assessee by the State El ectri ci ty Board i .e. Rs.2.336 per Uni t is more than reasona bl e to- be adopted f or purposes of computati on of profi ts and gai ns deri ved from eli gi bl e busi ness for the purposes of secti on 80IA of the Income-tax Act 1961.
6 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
9. He further observed that as regards rel i ance pl aced by assessee on Ld. ITAT Del hi 's orde r for AY 2001-02 i n hi s case & the order of Hi gh Court on the i ssue, i t i s menti oned wi th utmost respect to the adverse orde r of Hon'bl e Punjab & Haryana Hi gh Court in the case of assessee that the Department has preferre d SL P be fore the Apex Cou rt on the i ssues adjudi cated by the Hon'bl e Punjab & Haryana Hi gh Court.
10. He al so observed that it i s al so respectfull y submitted that in the assessment year 2001-02 the Department coul d not bri ng the enti re pi cture before th e hi gher judi ci al authori ti es. The whol e i ssue needs to be consi dered from an overal l perspecti ve. As to market val ue of el ectri ci ty suppli ed is concerned, i t postul ates a market and i f a market i s not there, a noti onal market has to be pre sumed. Under 'The El ectri ci ty (Suppl y) Act 1948, the generati on of el ectri ci ty is not permi tted except by the Board or the l i censee and further surpl us power from i ts captive consumpti on coul d be sol d to the Board onl y. The Board ha s be en defined under secti on 5 of The El ectri ci ty (Suppl y) Act 1948. Thus the surpl us power coul d onl y be sol d to ei ther the Board of same State G ovt. or the Board of other State Governm ents. Thus, there, will be as many buyer as the numbe r of Stat e El ectri city Board a re there . Thus, i t woul d be wrong to say that there i s no open market. Of, course, i t i s true that boards are onl y buyers i n the country. Now a questi on of l aw ari ses that if the politi cal system/poli ty of the nati on/enactment by Central Legi sl ature i s as herei n above i n Indi a, whereby the onl y market consi sts of the Boa rds, w oul d i t mean that there woul d be n o ma rket. In 7 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
my opi ni on, the answer i s i n negati ve in vi ew of exposi ti on as foll ows. The defini ti on of 'market val ue' has to be seen as per the pol iti cal system and the economy of the country. The Income Tax Act , 1961 i s a l aw passed, by the Central Govt. and hence, the defini ti on of market value used i n sub-secti on 7 of secti on 80IA has to be found, whi ch i s i n harmony wi th the market defi ned and covered by Electri city Suppl y Act, 1948 (A Central Act), till the act i s amended by the Parli ament.
11. Consi deri ng the pri nci pl es of economi cs, even in monopol y si tuati on in an economy of the nati on, there i s a market val ue/rate/pri ce and the open ma rket. The words, market value, open market, have to be understood as the rate pri ce gi ven by a monopoli st i n an economy of the nati on to the extent, i t i s consti tuti onall y open. It i s i rrel evant to say that l esser pri ce was offered to the appell ant by the State Govt./State El ectri ci ty Board. Inci dentall y, an El ectri ci ty Board represents 'State ' i n the federal set up of the country. Though l ooking si ngul ar, i t represents pl urali ty (of countrymen).
12. Hence, even when onl y one State El ectri ci ty Board i s a buyer of el ectri ci ty, the rate gi ven by i t to the assessee has to be treated as market rate, gi ven by publi c at l arge (through Rep. Boa rd) to the assessee .
13. Even whil e consi deri ng the 'market pri ce', from the State El ectri ci ty Board pe rspecti ve, the foll owi ng facts need to be consi dered whi ch themsel ves expl ai n the difference between the rate pai d by SEB to the assessee company and rat e charged from consumers. The SEB has to i ncur huge cost s 8 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
before it can suppl y el ectri city to the end consumer on foll owi ng heads:-
(i) Huge capital investment in distribution network.
(ii) Huge establishment cost related to its employees and the offices set up.
(iii) Transmission losses.
(iv) Electricity losses due to leakages in our country.
(v) Collection charges
(Vi) The financial cost of financing the capital infrastructure as
well costs related to non-realization of bills from consumers.
14. In case all these costs are consi dered, the gap cha rged by SEB from consume rs and that pa i d to assessee company can be easil y understood. It i s al so a fact that most of the Powe r Di stri buti on Boards i n our country are i ncurri ng huge business l osses.
15. Further, when the assessee com pany took the busi ness deci si on to set up the power pl ant, i t knew that i t had to operate i n a market gove rned by El ectri city Suppl y Act 1948, and all the financi al apprai sal reports w oul d refl ect the sal e of excess powe r to SEB at the rat es fi xed. Still the assessee company had taken busi ness deci si on to setup the power pl ant.
16. In the li ght of above, the de ducti on u/s 80IA was propose d to be all owed at Rs.2,52,62,31,398/- i n the draft orde r dated 28.03.2013 .
17. It was obse rved by the DRP that the i ssue at stake was the subject matter of i ntense judici al liti gati on. The judgement of Hon'bl e P & H Hi gh Court i n case of the asse ssee for A.Y. 2001-02 i s based on the orde r of same Hi gh Court i n case of 9 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
assessee for A.Y. 2000-01 i n whi ch relief i s all owed to the assessee by maki ng observati on as under:
"At the very outset, we may record that counsel f or the revenue has very fairly stated that Question No.3 stands covered against the revenue and w e held as such accordingly."
18. It was obse rved by the DRP that on i nqui ry, the assessee coul d not expl ai n by whi ch order the above sai d questi on no.3 i s covered agai nst the revenue. Further, i t has been noted that SLP is pendi ng in Hon'bl e Supreme C ourt on the i ssue i nvol ved.
19. The DRP has noted that the assessee i s not all owed to sell the surpl us power i n open market and as per PPA, i t has t o sell surplus power to SEB onl y. Therefore, onl y market avail abl e for the assessee i s SEB. Further, Se cti on 80A(6) i nserted by Fi nance Act,2009 w.e.f. 01.04.2009 defi nes 'market val ue' as under:
Explanation - For the purposes of this sub-section, the expression market value
(i) In relation to any goods or se rvices sold or supplied, means the price that such, goods or services w ould fetch if these, were sold by th e undertaking or unit or enterprise or eligible business in the open ma rket , subject to statutory or regulatory re strictions, if any.
20. The DRP observed that i t i s perti nent to menti on that secti on 80IA i s umbrell a secti on and i t governs dedu cti ons all owabl e under chapter VIA. Therefore, i t i s seen that w.e.f. 01.04.2009, there is substanti ve change in the l aw and therefore, ea rli er case l aws shall not be appli cabl e in the present si tuati on.
10 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
21. In vi ew of above, DRP was of the vi ew that the AO has ri ghtl y taken market value at the pri ce at whi ch power has been sol d to SEB.
22. The Assessi ng Offi cer obse rved t hat accordi ngl y, i n vi ew of the above di scussi on, the excessi ve profit as worked out above i s reduced for the cal cul ati on of deducti on u/s 80IA. Hence, the cl aim of the assessee company u/s 80-IA i s reduced by amount of Rs. 166,68,40,374/-. The assessee company cl ai med deducti on u/s 80IA i s respect of sal e of powe r for Rs. 4,193,071,772/-. Thus, the all owabl e deducti on u/s. 80-1A comes to Rs. Rs.2 ,52,62,31,398/ (Rs. 4,193,071,772/-mi nus Rs. 1,666,840,374/-).
23. Before us, the Authori zed Repre se ntative of the assessee submi tted that the aforesai d di spute, in respect of market rate of powe r a s pe r the provi si ons of secti on 80IA(8) of the Act , stands squa rel y deci ded in favour of Assessee by the fol l owi ng deci si ons:
Ø Decision of the Tribunal in the Assessee 's own case for assessment years 2000-01 and 2001- 02, as affirmed by this Hon'ble Court; (Kindly refer Pg. 160-206 and 207-215 (para 12-18) (16 SOT 509 (Del)) and pg. 156-158 and 159 of PB Vol. 1) Ø Decision of the Tribunal in the Assessee 's own case for assessment year 2004-0 5 (Kindly refer Pg. 216-260 of PB Vol. 1) Ø Decision of the Tribunal in the Assessee 's own case for assessment year 2002-03 and 2005-06 (Kindly refer Pg. 840-870 of PB Vol. III)
24. On the other hand, the Departmental Representative reli ed on the orders of the Lower a uthori ti es.
11 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
25. We fi nd that the i ssue is covered in favour of the assessee by the orde r of thi s Bench of the Tri bunal i n the case of the assessee i tsel f i n AY 2001-02 reporte d i n 16 SOT 509 (Del ) where i t was hel d as under:-
"12. We have carefully considere d the submission s of both the parties on this aspect. The crux of the dispute before us relates to the manner of computing profits of the undertakings of the assessee engaged in generation of power for the purposes of relief under Section 80-IA of the Act. The difference between the assessee and th e revenue is with rega rd to the det ermination of the market value of power so as to record the incom e accrued to the assessee on supplies made t o it s own manufacturing units. As not ed earlier, in this case, the assessee has utilized the power generate d for its captive consumpti on by way of supplies to it s other manufacturing units and also for sale to the State Electricity Board. The dispute essentially relates to the mechanism of Secti on 80-IA(8) of the Act. Section 80-IA(8) provides that where an assessee, which is eligible for Secti on 80- IA benefits, transfe rs its goods or services to a business other than the eligible business, the consideration, if any, recorded for such t ransfer i n the accounts of the eligible business should correspond to the market value of such goods or services. The sai d section authori zes the assessing officer that where the transfe r a s recorded in th e accounts of the eligible business does not correspond t o the market va lue, the profits declared of the eligible business can be adjusted by the assessing officer on such basi s so as t o ensure that goods or services transferred to its own unit i s done at the market value of such goods or se rvices. Ostensibly, in this case, the assessing officer was of the opinion that the conside ration for tran sfer of power for ca ptive consumption t o othe r units ha s been recorded at a conside ration which does not correspond to its market value. According t o the Authorized Representative, the consideration has been recorded at a price higher than the market value, in other words, the assessing officer does 12 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
not perceive Rs. 3.72 per unit as the market value of the power generated by the assessee and instead adopts Rs. 2.32 per unit as the market value, being the price at which the assessee sells power to th e Boa rd.
13. Before we proceed further, it i s also relevant to understand the implications of the expressi on "market value" as a ppearing in Section 80-IA(8) of the Act. In the Explanation below Section 80-IA(8), it is provided that the expre ssion " market value" for the purposes of the sub-section means the price that such goods or services w ould ordina rily fetch in the open market . In the above context, it therefore becomes important f or us to consi der as to whether the price charged by the assessee for powe r supplied to its own manufacturing units at the rate of Rs. 3.72 per unit can be said to be constituting a market value of its goods, namely, power.
14. In the Advanced Law Lexicon by P. Ramanatha Aiyar, 3rd Edition, 2005, the market pri ce or market value has been defined as below:
Market price or value is the price fixed by buye r and seller in an open market in the usual and ordina ry cou rse of lawful tra de an d competition; the price or value of the article established or shown by sales, public or private, in the ordinary way of business; the fair value of the property as between one who desi res to purcha se and one who desires t o sell; the current price.
Similarly, in the case of Orchard v . Simpson (1857) 2 CBNS 299, the phrase "market value" in a contract for the sale of goods has been understood to mean the price in the ma rke t to an ordina ry consumer, irrespective of the parti cular contra ct.
Similarly, in Law Lexicon by P. Ramanatha Aiyar, with reference to U. S. v. Ce rtain : Property i n Borough of Manhattan, City County and State of New York, C ANY , 403 F.2d800, 802, it has been explained that the market value of an article or piece of property is the price w hich it might be 13 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
expected to bring if offered for sale in a fai r market; not the price which might be obtained on a sale at public auction or a sal e forced by the necessities of the owner, but such a price as w ould be fixed by negotiation and m utual agreement, after ample time to find a purchaser, as between a vendor who is will (but not compe lled) to sell and a purchaser who desires to buy but is not compelle d to take the particular article or pie ce of property.
15. Therefore, from the afore said, it can be deduced that market value is an expression which denotes a price arrived at between the buyer and the seller in the open market wherein the transactions ta ke place in the normal cou rse of trading and competition in contrast to a situation where the price is fixed betwee n a buyer an d a seller in a negotiati on done under the shadow of legislatively mandated compulsion. In the case of the former, the price fixed betwe en the buyer and seller can be unde rstood a s denot ing 'market pri ce ' since the elements of trading and competition exist. Whereas in the case of the latter situation, the price fixed between the buyer and seller cannot be understood as denoting the ma rket price since the elements of trade and com petition are conspi cuous by their absence.
16. To unde rstand the contrasting situations, let u s analyze the situation on hand. In this case, the assessee re ceived consent under Section 44A of the Electricity (Supply) Act, 1948 to establish an d operate the captive power plant in terms of a Powe r Purchase-cum-Wheeling of Powe r Agreement date d 15-7-1999 entered between the State Electricity Boa rd and the assessee. A copy of the sai d agreement has been place d in the paper book. Now , in terms of the Electricity (Supply) Act, 1948, the Legislature has put rest rictions on establishment of power generating units and their functioning. The power generating units are allowe d to use power for captive consumption and the surplus available, if any, is t o be sol d t ransferre d to the Stat e Electricity Boa rds. Section 43 of the Electricity (Supply) Act, 1948 only authorizes the State Electricity Board to enter into arrangements for 14 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
purchase and sale of electricit y under certain conditions. Se ction 43A of the Electricity (Supply) Act, 1948 al so l ays down rules a nd conditions for determining the tariff for the sale of electricity by a generating company to the State Electricity Boards. A perusal of the same reveals that the tariff is determined on the basis of various pa rameters contained therein. F rom the af ore said, it is evident that on one hand it is only upon granting of spe cific consent that a private person ca n set up a powe r generating unit having restri ctions on the use of power generated and at the same time the tariff at which a power generating unit ca n supply power t o the Electricity Board is also liable to be determined in accordance with the statutory requirements. In this context it can be safely deduced tha t determination of tariff between the assessee and the Boa rd can be said t o be an e xercise between a buyer and seller neither in a competitive environment and nor in the ordinary course of tra de and business. It is an environment where one of th e players has the compulsive legisl ative mandate not only in the realm of enforcing buying but also to set the buying tariff in terms of preset statutory guidelines. Therefore, the price determined in such a scenari o cannot be equated with a situation where the price is determined in the normal cou rse of trade and competition. The re fore, the price determined as per the Power Purchase Agreement cannot be equated with market va lue as understood in common pa rlance. We see n o rea son for not holding so for the purposes of Section 80- IA(8) also.
17. In this background, we ma y make a gainful reference to the de cision of the Hon'ble Cal cutta High Court in the case of CAIT Vs Manmatha Nath Mukherjee, which has been re lied on by the assessee before us. The issue before the Hon'ble Calcutta High Court was in th e context of the Bengal Agricultural Income Tax Act, 1944. Shorn of other details, the question considered by the Hon'ble High Court, relevant for the present, was whether the procurement rate of paddy offere d by the State could be conside red t o be the market 15 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
value of paddy. In this back ground, the following observati ons of the Hon'ble High Court a re worthy of notice:
A market connotes free dom of ba rgain. There may be a ma rket, completely circumscribed as rega rds the rates by price control, but wi thin the limit set by the relevant rule or order, the area of operati on would still be a commercially f ree area. Even where a control price is fixed, it is generally the ceiling which is fixed and not an invariable price. Be that as it may, t o say that when agents of the Stat e seize paddy grown by subjects u nder the authority of some law or regulation and pay for it at some rate fixed by themselves and mu ch below the rate in the open market, they create a regulated or any kind of market at all, is if I may be permitted to use the strong expression, a mi suse of language . The Tribunal even speak of the persons whose paddy is seized a s "ope rating" in the regulated market. How any person who is seized by the neck and compelled to deliver his paddy and then dismissed with a trivialsum as its price can be said to ope rate in the market is beyond my comprehension .
From the af oresaid, an anal ogy t hat can be safely deduced is that the market val ue cannot be the result of a transaction which has been entered into between a buyer and a seller in a situation where one of the parties is carrying the compulsive mandate of the Legislature. The situation before u s is such wherein the aforesaid analogy can be usefully applied. As we have seen earlier, the price at which the power is supplied by the assessee to the Boa rd is determined entirely by the Board in terms of the statutory regulations. Such a price cannot be equated with the market value as understood for the purposes of Section 80-IA(8) of the Act. The stand of the revenue to the aforesai d effect cannot be approved.
18. Having held so, the natura l corollary is t o ascertain whether the price recorde d by the assessee at Rs. 3 .72 pet unit can be conside red t o 16 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
be the market value for the purposes of Section 80- IA(8) of the Act. The answer, t o our mind, is in the affirmative. This is for the reason that the assessee as an industrial consumer is also buying power from the Board and the Board supplies such power at the rate of R s. 3.72 per unit to its consumers. This is the price at which the consumers are able t o procure the powe r. We may con sider hypothetical situation as well. Had the assessee not been saddled with restricti ons of supply ing surplus powe r to the State Electricity Board, it would have supplied power to the ultimate consumers at rate s similar to th ose of the Board or such other competitive rates, meaning thereby that price received by the a ssessee w ould be in the vicinity of Rs. 3.72 pe r unit i.e. cha rged by t he Boa rd from its industrial consumers/users. Thus, under the given circumstances, it would be in the fitness of things to hold that the consideration recorded by the assessee's underta king generatin g electric powe r for transfer of powe r for captive consumption at the rate of Rs. 3 .72 per unit corresponds to the marke t value of power. Therefore, on this aspect, w e uphold the stand of the assessee and set aside orde r of the Commissioner (Appea ls) and direct the assessing officer t o all ow relief to the assesse e under Section 80-IA as claimed. Assessee succeeds on this ground."
26. It i s al so seen that agai nst thi s deci si on, the Department preferre d an appeal before the Hon'bl e Punjab & Ha ryana Hi gh Court whi ch was di smi ssed vi de order dated 02.09.2008 i n ITA No. 53 of 2008 copy of whi ch i s pl aced at page no. 159 of th e paper book vol ume 1 filed by the assessee.
27. Further on an i denti cal i ssue Hon'bl e Bombay Hi gh Court i n the case of CIT vs. Reli ance Industri es Ltd. [2019] 102 taxmann.com 372) has deci ded the i ssue in favour of the assessee by obse rvi ng as under:-
17 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
"4. Question (c) pertains t o the dispute between the department and the assessee regarding the rate at which the electricity generated by one unit of the assessee-com pany and provided to the another be valued. The assessee contended that such valuation should be at the rate at which the electricity distribution companies are al lowed to supply electricity to the consumers. T he revenue on the other hand argues that the appropriate rate should be the rate at which the electricity is purchase d by the distribution companies from the el ectricity generating companies.
5. This controversy arose in the background of the fact that the assessee had set up a captive powe r generating unit and claimed deduction under Section 80IA of the Income Tax Act, 1 961 ("the Act" for short) in respe ct of the profits arising out of such activity. Obviously, therefore the attempt on the part of the assessee was to claim larger profit under the unit which was eligible for such deduction as against this, attempt of the revenue would be see that the ineligible unit shows greater profit .
6. The Tribunal in the impugned judgment extracted extensively from the orde r of CIT (Appeals) an d independent reasons for confirming the same. In such orde r CIT (Appeals) had place d re liance on an ea rlie r judgment of the Tribunal in case of Reliance Infrastructure Lt d. v. Addl. CIT [2011] 9 taxmann.com 186 (Mum. - Tri b.). Learned counsel for the assessee had pla ced on record a copy of the judgment of the Tribunal in case of Reliance Infrastructure limited. In such ju dgment an identical issue came up for consideration. The Tribunal by detailed judgment had held and observed as under:--
"44. In the given facts and circumstances of the case, we a re of the view that the profits of the business of generation of powe r worked out by the Assessee on the basi s of the pri ce that it paid to TPC for purchase of power continues to be the best basis even after the orde r of MERC and therefore the same has to be accepted as was done in the past and as approved by the ITAT in Assesssee's 18 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
case. We therefore dismiss ground No.4 of the revenue."
7. Counsel for the a ssessee pointed out that the judgment of the Tribunal in case of Reliance Infrastructure Ltd. (su pra) was carried in appeal by the revenue before the High Court in Income Tax Appeal No.2180 of 2011, such appeal was dismisse d making following obse rvations:--
"6. As far a s question (d), n amely, the claim relating to purcha se price f rom Tata Powe r Company is concerned an d that was for the deduction under Section 80IA, the ITAT in paragraph 21 onwards has n oted the factual findings and also referred to t he order of the Maharasht ra Electricity Regulat ory Authority (for short "MERC"). Paragraph 36 set outs as to how the claim arose. The claim has been considere d in the light of Section 80IA and pa rticularly proviso an d explanation thereto. The Tribunal eventually held that till the Assessment Year 2005-2006, the Revenue considered the rate at which the powe r was purchased by the Assessee from Tata Powe r Company as market value. There i s nothing brought on record as to how the rate determined by the MERC is the true market value. The Assessee gave explanation that the rates determined by the MERC do not reflect the correct market rate. The finding is that the mode of computation and deduction under Section 80IA requi res no deviation from the past. The findings of fact and to be found in paragraphs 42 to 50 also reflect that the very issue came up for consideration for the Assessment Yea r 2003-2004. For the rea sons a ssi gned by the ITAT and finding that the attempt is to see k reappreciation and reappraisal of the factual dat a that we come to a conclusion that even question (d) as framed is not a substantial question of law."
8. Thus, the issue at hand had been examined by this Court on earlier occasion and the view of the Tribunal under similar circumstances was a pproved.
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9. Additi onally, we also notice tha t similar issue cam e up for conside ration before Chhattisgarh High Court in case of CIT v. Godawa ri Powe r & Ispat Ltd. [2014] 42 taxmann.com551/223 Taxman 234, in which the C ourt held and observed as under:
"31. The market value of the power supplied to the Steel-Division should be compute d considering the rate of power to a consumer in the open market and it should not be compared with the rate of powe r when it is sold t o a supplier as t his is not the rat e for which a consumer or the Steel-Division could have purchased power in the open market. The rate of powe r to a supplier is n ot the market rate to a consumer in the open market.
32. In our opinion , the AO comm itted an illegality in computing the market value by taking int o account the rate charge d to a supplier: it should have been compa red with the market value of power supplied to a consumer."
10. Gujarat High Court in case of Pr. CIT v. Guja rat Alkalies & Chemicals Ltd. [2017 ] 395 ITR 247/88 taxmann.com 722 also had occasi on to examine such an issue. It referred to e arlier order in case of Asstt . CIT v. Pragati Glass Works (P.) L td. [Tax Appeal No. 1646 of 2010, dated 30-1-2012] in which followin g observati ons were made:--
"7. To ou r mind, Tri bunal has committed no error. Assessing Officer and CIT (Appeal s) while adopting Rs. 4.51 per unit as the value of electricity generated by eligi ble unit of assessee and su pplie d through its non eligible unit only worked out cost of such electricity generation. In fact CIT (Appeals) in terms recorded that Rs. 4.51 w as computed a s the reasona ble value of the electricity generated by eligible unit of assessee. This amount included Rs. 4.17 per unit which was the cost of electricity generation and Rs. 0.34 pe r unit which was duty paid by the assessee to GEB for such powe r generation. Thus the sum of Rs. 4.51 per unit only represented the cost of electricity generation to the assessee. In Secti on 80IA(8) of the Act what is 20 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
required t o be ascertained is the market value of the goods transferre d by the eligible business, when such transfer is by eligible business t o another non eligible business of t he same assessee and the considerati on re corded i n the accounts of the eligible business does not correspond to ma rke t value of such goods. Te rm "Marke t Value" is further explained in explanation to said sub-section to mean in relation to any goods or services, price that such goods or services will ordina rily fetch in the open market. To ou r mind sum of Rs. 4.51 per unit of electricity only repre sented cost of electricity generation t o the a sse ssee and n ot the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non e ligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and exclu ding excise duty therefrom to w ork out Rs. 4.90 as the market value of the electricity generated by th e assessee, t o ou r mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or w as all owed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof w ould n ot be retained by the assessee, Tribunal reduced t he said figure by the nature of excise duty and cam e to the figure of Rs. 4.90 to asce rtain the market v alue of electricity generated by the eligible unit and supplied to non eligible business of the assesse e. No error wa s committed by the Tribunal. No question of l aw therefore, a rises. Tax Appe al is dismissed."
11. Judgment of Calcutta High C ourt in case of CIT v. ITC Ltd. [2016] 236 Taxma n 612/[2015] 64 taxmann.com 214 was also brought to our notice in which the said High C ourt has ta ken a different stand. However, since the issue has alre ady been examined by this Court earlier and in view of the decisions of the Chhattisgarh and Gujarat High Court, we see no reason to entertain this question."
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28. Hence, respectfull y foll owing the above deci si ons we set asi de the orders of the l ower authori ti es and vacate the reducti on i n all owance of deducti on of Rs. 166,68,40,374/- under section 80IA of the Act an d allow this ground of a ppeal of the assessee.
29. Ground No. 3 of the appeal of the assessee reads as under:
"3. That the assessing officer/ DR P erred on facts and in law in not conside ring and all owing deduction of Rs.77,81,08,987 claimed by the appellant under section 801B of the Act in re spect of profits de rived from Rail Universal Beam Mill.
3.1 That the assessing officer/ DRP grossly erred in holding that deduction under sect ion 80IB of the Act claimed by the appellant in respe ct of profits of the Rail Universal Beam Mill during the course of assessment proceedings w as not a dmissible in view of the decision of the Supreme Court in the case of Goetze India Limited vs CIT: 284 ITR 323.
3.2 That the assessing officer/ DRP grossly erred in not appreciating that: (a) aforesai d deduction claimed by the appellant was mere en hancement of the deduction claimed under section 80IB of the Act in the return of income; and (b) t he assessing office r was, in any case, duty bound to suo motu allow the said de duction, even if the a ppell ant had not claimed the same in the return of income or du ring the assessment proceedings.
3.3 Without prejudice, that, in any case, the DRP grossly erred on facts and in law in not admitting and considering on merits deduction claimed by the appellant under section 80IB of t he Act, by treating the same as fresh claim."
30. The Assessi ng Offi cer observed that Ld. Members of the DRP heard arguments of the authori zed representati ve of the 22 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
assessee and observed that they are mi spl aced. The DRP observed that the deci si on of the Hon'bl e Supreme Court i n the case of M/s Goetze Indi a Li mi ted v/s C.I.T. reporte d i n 284 ITR 324(SC), i s the l aw of the l and and the A.O.'s acti on bei ng fundamentall y based on the sai d deci si on of the Hon'bl e Supreme Cou rt, call s for no i nterference. The DRP al so observed that asse ssee had ampl e opportuni ties to cl ai m the deducti on i n the ori gi nal return as wel l as i n the revi sed return, but, the assessee, at no poi nt of time, made any effort i n the di recti on.
31. The Assessi ng Offi cer observed that the Ld. DRP al so found that the CBDT's ci rcul ar reli ed upon by the assessee was al so not of much assi stance because the case under di scussi on was not a si mpl e case of i gnorance on the part of the assessee whi ch is a li mi ted company, undergoi ng assessment proceedi ngs for the l ast so many years and being gui ded by a well competent tax advi sor. In any case the sai d ci rcul ar of the CBDT has n ot di rected the A.O. to al l ow such cl ai ms suo-motto. As per the sche me of the Act, the sai d cl aim of deducti on must have been ma de i n the ori gi nal or revi sed return of i ncome whi ch the assessee has fail ed to compl y wi th. The Ld. DRP went on t o say tha t the sai d ci rcul ar of CBDT cannot overri de the scheme of the Act as interpreted by the Hon'bl e Supreme Court of Indi a.
32. The Assessi ng Offi cer further observed that the l d. members of DRP havi ng consi dered the objecti ons rai sed by the assessee and the i ssues di scussed i n detail i n the draft assessment order dated 28.03.2 013, passe d the consi dere d orde r wi th the foll owi ng observati on:-
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"After a careful consideration of the details the DRP are of the view that the Assessin g Officer was fully justified in rejecting the claim of the assessee in the light of the judgement in the case of Goetze India Ltd., Vs. C IT (SC). Accordin gly, the objecti on of the assessee is rejected."
33. The Assessi ng Offi cer for the reasons gi ven above and the di recti ons of the l d. D.R.P., di sallowed the cl aim of deducti on u/s 80IB amounti ng to Rs.77,81,0 8,987/-.
34. Before us, the Authori zed Repre se ntative of the assessee submi tted that duri ng the course of heari ng before the Assessi ng Offi cer, the Ld. AR put forwa rd vari ous factual and l egal arguments, as under :-
a. That the claim of deduction u/s 80-IB of the Act made by the assessee was not a f resh claim, but mere enhancement of its existing claim of deduction under the provision of t he Act as 80-IB was claimed on other units.
b. The Supreme Court, made it clear in the decision itself that Goetze India (supra) was restricted t o the power of AO t o entertain a claim for deduction otherwise than by a revised return an d the same did not impinge on th e power of the Tribunal u/s 254 of the Act to permit a new claim.
c. The Hon'ble Jurisdicti onal High Court in the case of CIT v. Ramco International [ 2011] 332 ITR 306 (P&H), after discussing the decision of Goetze Indi a (supra), upheld the Tribunal's decision which had, interalia, upheld the decision of CIT(Appeals) all owing the Assessee to claim the benefit of Section 80-IB through Form 10CC B and other documents which were furnished before the AO during the course of assessment proceedings. The H on'ble High Court, while 24 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
considering the following su bsta ntial question, decided the issue (at para 5) in favor of the Assessee.
d. The judgment of Goetze India (supra) was note d by the Mumbai Bench of the Tribu nal in the case of Chicago Pneumatic India Ltd. v DCIT: 15 SOT
252. In that case, the assessee revised th e claims for deduction u/s 80HH and 80-I of the Act during the course of assessment proceedings without filing a revised return. The Tribunal considere d Circula r no. 14(XL-35 ) of 1955 [Pg. 271 to 273 of PB-1], as well as the decision of the Supreme Court in the case of Goetze India (supra) and held as under:
"the A.O. may grant reliefs/refunds suomotu or can do so on being pointed out by the assessee in the course of assessment proceedings for which assessee has not filed revised return , although, as pe r law, the assesse e is required t o file the revised return".
e. That from the facts of Goetze India (supra)it is inferred that it was a case of 'fresh claim ' whereas the assessee case is of the 'enhancement of its existing claim'. Hence, the decision of Goet ze India (supra) i s not a pplica ble at all.
35. It i s submi tted that by way of revi sed computati on of i ncome filed al ong with l etter dated 28.03.2012, the assessee merel y enhanced i ts exi sti ng cl aim of de ducti on u/s 80IB of the Act by cl ai mi ng deducti on under that Secti on wi th respect to profi ts deri ved from Rail Uni versal Beam Mi ll uni t as i n the return 80IB deducti on for Mi ni Bl ast Furnance Uni t had al ready been cl aimed. Al so, duri ng the course of assessment proceedi ngs, on i denti cal facts, deducti on for Ferro Chrom o Uni t was cl ai med under Secti on 80IB, whi ch had not been cl ai med i n the Return of Income and that i t was all owed to the 25 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Assessee. These facts fi nd mention i n para 4.2 of the draf t assessment orde r.
36. The Authori zed Representati ve of the assessee rel i ed on the deci si on of Hon'bl e Tri bunal in the case of JCIT vs Hero Honda Fi nl ease Ltd.: 115 TTJ 752 (Del . ITAT) (Thi rd Member), wherei n after consi deri ng the decisi on of Supreme Court i n the case of Goetze Indi a (supra), on a si mil ar i ssue, deci ded i n favour of the assessee.
37. Reli ance was al so pl aced on the deci si on of the Delhi Bench of the T ri bunal in the case of IT O vs. Efextra Esol uti ons Pvt. Ltd. [ITA No. 313/Del /2012]wherein the Tri bunal after consi deri ng the decisi on of Goetze Indi a (supra), hel d as under:-
"The issue before us is as to wh ether the aforesai d action of the L d. C IT (A) is justified. Now, it is see n that the assessee, on being pointed out by the Assessing Officer that deduction u/s 10B w as n ot available to it, changed its claim to one u/s 10A of the Act, by way of filing a report in Form No.56F before the Assessing Officer. "Goetze (India) "
(supra), t o our mind, is n ot attra cted to the fact s of the present case , since therein , the claim made subsequently was an altogether f resh claim, whereby the returned income got changed. It is not so here . Undisputedly, in the present case, on the change of the claim, neither the returne d income, n or the assessed income of the assessee has undergone any change whatsoever."
38. Further, rel i ance in thi s regard, was al so pl aced on the foll owi ng deci si ons wherei n i t has been hel d that the deci si on of the Supreme Cou rt i n the case of Goetze Indi a (supra) i s not appl i cabl e to cases where the assessee merel y seeks to enhance i ts exi sting cl ai m:
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Ø CIT vs Arvind Mills Ltd.: ITA No. 1407 of 2011 (Guj.) Ø CIT vs M/s. Pruthvi Brokers & Sha reholders: ITA NO. 3908 OF 2010 (Bom.) Ø JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member)
39. Furthermore, i t was contended that a cl ai m whi ch i s admi ssi bl e in appell ate proceedi ngs shoul d be all owed in assessment proceedi ngs as well , in order to avoi d a mul ti pli ci ty of proceedi ngs and avoi d compl exi ties. For thi s reli ance was pl aced on the foll owing deci si ons:-
Ø Chicago Pneumatic India Ltd. v DCIT: 15 SOT 252 (Mum. ITAT) Ø Kisan Discretiona ry Family Trust v ACIT: 113 TTJ 918 (Ahmedabad ITAT) Ø Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001 (Mum. ITAT)
40. It was al so argued that there i s no bar/ prohi bi ti on on the power of an Appel l ate Authori ty to consi der fresh cl ai m made by the assessee for whi ch reli ance was pl aced on the foll owi ng deci si ons :-
Ø Franco-Indian Pharma ceuticals (P.) Ltd. v. Income-tax Officer [2010] 195 TAXMAN 30 (MUM.) (MAG) Ø Hon'ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) Ø CIT vs Jai Parabolic Springs Ltd.: 306 ITR 42 (Del. HC) Ø CIT vs Ramco International: 332 ITR 306 (P&H). Ø CIT vs Pruthvi Broke rs and Sh areholde rs (P) Ltd.: 208 Taxman 498 (Bom.) Ø CIT vs Arvind Mills LTD: ITA No. 1407 of 2011 (Guj.) Ø Aishwarya Rai vs DCIT: ITA No. 11 59/Mum/04 Ø CIT v. Sam Global Securities Ltd. [ 2014] 360 ITR 682 (Delhi) 27 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
41. Reli ance was pl aced on the Ci rcul ar no. 14(XL-35) of 1955 i ssued by the Boa rd of Re venue under the Income-tax Act, 1922 expl ai ning the rol e to be pl ayed by the AO's whil e conducti ng assessments. The sai d ci rcul ar provi ded that the AO's must not take advantage of i gnorance of the assessee and i n case, the assessee omi ts to cl ai m any relief or refund, whi ch he i s enti tl ed to, the AO shoul d draw attenti on of the assessee towa rds such omi tted cl ai m/ relief/ refund.
42. Reli ance was pl aced on the deci si on of Hon'bl e Hi gh Court of Del hi i n the case of Pr. Com mi ssi oner of Income Tax vs. Oracl e(OFSS) BPO Se rvi ces ITA 593/2018 orde r date d 17th January, 2019 wherein Hon'bl e Court whil e adjudi cating the i denti cal facts as i nvol ved i n the facts of the pre sent case hel d that Amendment to 80A (5) of the Act does not bar th e assessee from revi si ng the computati on for deducti on made under the provi si on.
43. It was submitted that Hon'bl e Delhi Hi gh Court whil e di smi ssi ng the department appeal has al so di scussed the orde r i n the case of Infl uence Vs. C ommi ssi oner of Income Tax (2015) 55 Taxman.com 192 (Del hi) and Pri nci pal Commi ssi oner of Income-tax Vs. E-Funds Internati onal Indi a Pvt. Ltd. (2015) 379 ITR 292 (Delhi ) and observed that :-
"Thus a distinction was drawn bet ween a new claim, which is barred and not permissi ble and a request or praye r made by the assessee f or re-com putation of the deduction alre ady clai med. Latter wa s permissible and not ba rre d in terms of the decision in the case."28 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
44. Further, i t was submi tted that Department has not all eged the correctness of the revi sed computati on of income made by Assessee.
45. Further, the Authori zed Representati ve pl aced reli ance on Arti cl e 265 of the Consti tuti on of Indi a, accordi ng to whi ch no tax can be i mposed/ coll ected by the State, otherwi se than by authori ty of l aw. In the present case, i t was submi tted that, the assessee was eli gi bl e for dedu cti on u/s 80IB of the Act on meri ts. The sai d deducti on was i nadvertentl y not cl ai med i n ori gi nal or revi sed return of i ncome. However, the same wa s dul y cl aimed by the assessee i n assessment proceedi ngs vi de l etter dated 28.03.2012, submi tted before the AO. The cl ai m of deducti on was dul y supported by the report of the Chartere d Accountant in Form No. 10CC B, ce rti fyi ng the cl ai m of deducti on. Si nce all owability i s not di sputed by the AO, deni al of the deducti on under Secti on 80IB of the Act by appl yi ng the deci si on i n the case of Geotze Indi a i s not permi tted and i s agai nst the spi ri t of Arti cl e 265 of the Consti tuti on of Indi a.
46. It was therefore prayed that in vi ew of the above, the acti on of the AO i n not consi deri ng the cl ai m made by assessee duri ng the assessment proceedi ngs, wi thout appreci ati ng that the same in the true spi ri t of the l aw, is ill egal l and unsustai nabl e. The AO shoul d, th erefore, be di rected to al l ow deducti on u/s 80IB of the Act, as cl ai med by the assessee.
47. The l d. Departmental Representative reli ed on the orde r of the l ower authori ti es and i nsi sted that the Supreme Court deci si on has been ri ghtly appli ed by the Assessi ng Offi cer and the same shoul d be foll owed.
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48. After consi deri ng the ri val submi ssi ons and perusi ng the materi al s on record we fi nd that the assessee before th e Assessi ng Offi cer had categori call y submi tted that in the rel evant assessment year, the sai d uni t earned profi ts of Rs.77,81,08,987/- whi ch were eligi bl e for deducti on u/s 80IB of the Act. The sai d deducti on was, i nadvertentl y, not cl ai med by assessee i n ori gi nal / revi sed return of i ncome. In the 'Note s to Account No. 7 ' fi led al ong wi th the return of i ncome, the eli gi bili ty of deducti on u/s 80IB was categori call y menti oned. Accordi ngl y, the deducti on was cl ai med duri ng assessment proceedi ngs for rel evant assessment year, vi de l etter dated 28.03.2012 al ong that wi th Form 10CCB certi fyi ng the sai d cl ai m of deducti on. From the assessment order i t i s seen that the AO al l owed a si milar deduction u/s 80IB wi th respect t o Ferro Ch rome Uni t (SAF), whi ch was menti oned i n the notes to the account, and not cl ai med i n the Return of Income, was all owed duri ng the course of assessment and to that extent, the facts are i denti cal . It is al so seen from record that all owabili ty of the cl aim on meri ts i s not di sputed by the AO and in fact deducti on on thi s uni t has been all owed in subsequent year al so. However, the onl y reason why the AO di d not all ow the deducti on i s on account of a Supreme Court deci si on i n the case of Goetze In di a Limi ted vs CIT (284 ITR
323) (SC). The Hon'bl e Supreme Court, ma de i t cl ear that the deci si on i n Goetze Indi a (supra) was restri cted to the power of AO to entertai n a cl ai m for deducti on otherwi se than by a revi sed return and the same di d not i mpinge on the power of the Tri bunal u/s 254 of the Act to permi t a new cl ai m. In any case, thi s order has been subject matter of deci si on in vari ous other cases, wherei n i nterpreting thi s i ssue, i t has been hel d 30 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
i n favour of the Asse ssee by observi ng that the power of the Tri bunal i n deci di ng appeal s i s very wi de. Hon'bl e Punjab and Haryana Hi gh Court i n the case of CIT v. Ramco Internati onal [2011] 332 ITR 306 (P&H), after di scussi ng the deci si on of Goetze Indi a (supra), uphel d the Tri bunal 's deci si on whi ch had, i nter ali a, uphel d the deci si on of CIT(Appeal s) al l owi ng the Assessee to cl ai m the benefi t of Secti on 80-IB though Form 10CCB and other documents whi ch were furni shed before the AO du ri ng the course of assessment procee di ngs. The Hon'bl e Hi gh Court, whil e consi deri ng the foll owi ng substanti al questi on, deci ded the i ssue i n favour of the Assessee:
"1.Whether, on the facts and in the circumstances of the case and in law, the ITAT was right in law in allowing assessee 's claim for deduction u/s 80-IB, which the assessee ha d neither claimed in the return of income nor through a revised return of income?
2. Whether on the fa cts and in the circumstances of the case, the decision of IT AT is not contrary to th e law as spell out by the Hon'ble Supreme Cou rt in Goetze (India) Limited v. CIT 284 ITR 323 (SC) and Additional Commissi oner of Income-tax v. Gurjargravures (P.) Ltd. 111 ITR 1 (SC)?"
........................................
"5. In view of the finding that the assessee was not making any fresh claim and had duly furnished the documents and submitted Form for claim u/s 80-IB, there was no requi rement for filing any revised return. The judgment relied upon was not applicable."
Reliance in this regard is furth er place d on the decision of the Mumbai Bench of the Tribunal in Oman International Bank SAOG vs ACIT: ITA No.1981/Mum/2001. On further a ppeal, the Tribunal 31 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
upheld the claim of the asse ssee by holding as under:
"We have heard both the pa rties on this issue. The impugned amount claimed by the assessee is not a deduction but it is an expenditure. It is not the case of the revenue that these expenditures are not allowable in the regular course of business of the assessee. The claim is supporte d by the audit report . Therefore, we a re of the opinion, that Ld. CIT(A)has rightly granted relief to the assessee . The aforementioned de cision of Hon 'bl e Supreme C ourt in the case of Goetze (India) Ltd. vs. CIT (supra) is not applicable to the facts of this case. Therefore, we decline to interfere in the relief granted by the Ld. CIT(A). This ground of the revenue for both the years is dismissed."
Furthermore, reliance is also pl a ced in the case of Franco-Indian Pha rmaceuticals (P.) Ltd. v. Income- tax Officer [2010] 195 TAXMAN 30 (MUM.) (MAG) - Hon'ble IT AT after conside ring t he decision in the case of Goetze India (supra) obse rved that "12. On a considerati on of the arguments, we hol d that the decision of the Hon'ble Supreme Cou rt in the case of Goetze (Indi a) Ltd. (supra) makes it clea r that the powers of the Tribunal as laid down in the case of Nati onal Thermal Powe r Co. Lt d. (su pra) are not affected by this decision. Thu s, the Tribunal has the power to admit an additional ground or claim made by the assessee, when al l the facts are on record. In this case, the facts ha ve been brought on record before the AO by the assessee in the letter dated 24-7-2006 itself. Thus, a s the facts are on record, we admit this claim of the assessee made before us by a pplying the ratio of the decision of the Hon'ble Supreme Cou rt in the cases of National Thermal Powe r Co. Ltd. (supra) as well as case of Jute Corpn. of India Ltd. v. C IT [ 1991] 187 ITR 688. 1 Thus, this alternative argument of the assessee is allowed."
More over, Hon'ble Delhi ITAT in the case of JCIT vs Hero Hon da Finlease Lt d.: 115 T TJ 752 (Del. ITAT) 32 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
(Third Member), after conside ring the decision in the case of Goetze India (supra) obse rved:
"I have carefully conside red the questions, the orders of the IT authorities and the rival contentions. The precise difference between the two learned Members is rega rding the question whether the CIT(A) ought to have first decided the question of entertainability of the assessee's higher claim of depreciation by a letter and not by a revised return, before deciding the merits of the claim. In Goet ze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 (SC), the Supreme Court held that the assessee can make a claim for deduction, which has not been cla imed in the return , only by filing a revised return within the time allowed. In the same decision, it was made clear that the power of the Tri bunal to a dmit an additional ground unde r s. 254 is not affected by its decision. It was however clarified that the case was concerne d with only the powe r of the a sse ssing authority and not the appellate authority. Un der s. 250(5), the CIT(A) has the power to allow the appellant to go int o any ground of a ppeal n ot specifie d in the grounds of appeal if he satisfied that the omission of the ground from the form of appeal wa s not wilful and unreasonable. Dealing with such a power, the Bombay High Court in Prabhu Steel Industries (P) Ltd. (supra), held that where a claim for spe cial deduction was made by the assessee not in his return but in the course of the a ssessment procee dings and the IT O failed to consider the same, it was open to the AAC to entertain the claim. In CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC), it was held by the Suprem e Court that the powers of the CIT(A) sitting in appeal over an a ssessment we re plenary and co-te rminus with those of the AO and that he can do what the ITO can do and also di rect him to do what he has failed to do. In the light of the law laid down in this judgment by the Supreme C ourt, it was open to the CIT(A) t o consider the assessee 's claim on merits by virtue of his co-extensive power over the assessment proceedings and also by virtue of s. 250(5). That apart, the judgment of the Su pre me Court in Goet ze (supra) is distinguishable on facts because in that case the claim wa s made for the first time in the 33 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
letter filed by the assessee in the course of the assessment proceedings whereas in the present case the claim of depreciation on the trucks @ 20 per cent was already made in the return of income and it was merely enlarged to 40 per cent on the footing that the assessee was running the trucks on hire"
Furthermore, as has been held by various Cou rt and including a CBDT Boa rd Circula r (Circular no. 14(XL-
35) of 1955), the Assessing Officer is duty bound to apply relevant provisi ons of the Act in order t o arrive at the true figure of the assesse e's taxable income.
The Hon'ble Bombay High Court in the case of CIT v. Archana R. Dhanwatay 136 ITR 355[Pg. 297 to 300 of PB-1] upheld the order of the Tribunal wherein it was held by the Tribunal that it was th e duty of the IT O t o consider whether the assessee was entitled to deduction, even when it w as n ot claimed by the assessee. Similar obse rvation was made by the Hon'ble Delhi High Cou rt in the case of CIT v. Bhara t General Reinsurance C o. Ltd. [ 1971] 81 ITR 303 (DELHI)] and in CIT v. Sain Processing &Wvg. Mill s (P.) Ltd].
Lastly, we also agree with the contention of the counsel for the Assessee, that Goetze India (supra) is distinguishable as that was a ca se of 'fresh claim ' whereas the a ssessee 's case i s of the 'enhancement of its existing claim'. Hence, the decision of Goetze India (supra) is not applica ble at all. For this proposition , we derive support from the decision of Hon'ble Delhi ITAT in the case of JCIT vs Hero Honda Finlease Ltd.: 115 TTJ 752 (Del. ITAT) (Third Member) (supra) an d the de cision of IT O vs. Efextra Esolutions Pvt. Ltd. [ITA No. 313/Del/2012].
In the present case, it is seen that in the original a s well as revised retu rns of income filed by the assessee, the asse ssee has claime d deduction u/s 80- IB of the Act. In fact in notes to account no. 7, the Assessee has mentioned about the eligibility of deduction u/s 80IB in respect of Rail Universal Beam Mill. Similarly, in notes to account no. 6, the assesse e had mentioned a bout eligibility of deduction u/s 80IB for Fe rro Chrome Unit (SAF) w hich was not also 34 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
claimed at the time of filing of return of income or revised return of income, howeve r, deduction on the said unit (SAF) was claimed by the assessee durin g the course of assessment and t he same has been allowed by the AO. It is pertinent to note here that there is no justification for th e AO to treat the deduction claimed in respect of Ferro Chrome Unit (SAF) and Rail Universal Beam Unit, differently by allowing deduction claimed in respect of one unit and denying it in respect of another, when a dmittedly facts are identical. This can be se en from para 4.2 of the draft assessment orde r, which has been placed before us. Even otherwise, allowa bility of the claim is not doubte d nor disputed by the Assessing Officer. Report of Charte red Accountant in Form No. 10CC B for this unit has also been placed on record, a copy of which is in the Paper book before us also.
In this rega rd, we also wish to con sider a recent Delhi High Court judgment wherein on identical facts Hon'ble High Cou rt of Delhi in the case of Pr. Commissioner of Income Tax vs. Ora cle(OFSS) BPO Services ITA 593/2018 - Judgment dated 17th January, 2019 while adjudicating the identical facts as involved in the facts of the present case Hon'bl e High Court held that Amendment to 80A (5) of the Act does not bar the assessee from revising the computation for deduction made under the provision . The Court held that-
"Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the revised computation of deduction under Section 10A of the Income Tax Act, 1961 ("the Act‟) for sh ort) was permissible having regard to Section 10A (5) and Section 80A(5) of the Act?"
11. The contention of the revenue is that the revise d computation sh ould not have been accepted, for which reliance is place d on th e judgment of the Supreme Court in Goetze (India) Ltd. Vs. Commissioner of Income Tax (2006) 284 ITR 323 (SC). It was also submitted that the first Appellate Authority and the Tribunal have failed to take notice of the amendment to Section 80 A (5) vide Finance 35 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Act, 2009 w.e.f. 1 st April, 2003. In support, reference was made to the judgment of this court in Nath Brothe rs Exim International Lt d. Vs. Union of In dia &Ors., (2017) 394 ITR 577 (Del.).
20. In the facts of the present case, we do not thin k Sub-section 5 to Section 80A w ou ld be attracte d and should be applied......... ..
21. Sub-section 5 to Section 80A states that if assessee has failed to make its claim on return under 10AA or 10B or any other provisi ons of Cha pter VIA, no deduction shall be all owed to h im thereunder. This bars an d prohibits the assessee from claiming the deduction under Sections 10A and 10B and Chapter VIA if no such claim was made in the return of income. It is also mandat ory t hat the return of income for claiming such deduct ion should be filed within the time stipulated under Section 139 (1) of the Act, a s was held in the case of Nath Brothers Exim International (Supra). In the said case the assessee in the return for the assessment year 2007- 08 had not claimed any exemption under Section 10B of the Act. This deduction was claimed for the first time in the revised return. On being denied this claim, constitutional vires of Sub- section 5 to Section 80A, as inse rted by Finance Act, 2 009 and 4th proviso of Section 10B (1) of the Act, w ere challenged. The challenge was reje cted by the Di vision Bench of this Court holding that the amendment made cannot be faulted and quashed on the ground that it was discriminatory, arbit rary, unrea sonable and violative of Article 14, obse rving that it was within the legislative domain to prescri be the limitation period and also stipulate that the assessee to claim deduction must file returns during the limitation period, so as to enable the Department to take up these cases for scrutiny assessment. Plea of arbitra riness wa s re jected. The decision and ratio i s distinguishable as the respondent-assessee had claimed deduction unde r Secti on 1 0A of the Act in the return of income filed within the limitation period. It was, theref ore, not a new claim. Question of revision of deduction wa s not the issue and question rai sed 36 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
and answere d in Nath Brothers Exim International (supra).
22. Our attention was, h owever, drawn to the observati ons of the Division Bench that the objective behind the amendment was t o de feat multiple claims of deduction and ensure better compliance. Certainly, the amended provisions ensure better compliance of the statutory provisions. Reference to the expression "multiple claims of de duction" would be with reference to the stipulation that deduction should be claimed under a pa rticular provisi on and it cannot be shifted and treated as deduction claimed under the other provision. Language of Sub- section 5 to Section 80A doe s not state that the deduction once claimed under a particula r section cannot be corrected an d modified before the Assessing Officer. Indeed, the Assessing Officer can examine the claim for deduction and can make adjustment/ disal lowance. We woul d not read in the amended provision, a stipulation barring and rest ricting the assessee from revising the computation/ claim for de duction made in accordance with Section 80A (5) of the Act."
Hence, taking into conside ration all the relevant judgments as cited above by us and also con siderin g the fact that the allowa bility of the claim on me rits i s not disputed by the Assessing Officer and more importantly, on identical fact s, in case of anothe r Unit, 80IB deduction was allowed by the Assessing Officer himself, during the cou rse of assessment proceedings as mentioned in para 4.2 of the draft orde r, we see no reason to not all ow this claim of the Assessee. Hence, the Assessing Officer is directed to allow the deduction u/s 80IB of the Act on this unit of Rail Universal Beam Mill."
49. In vi ew of the above di scussi ons, we set asi de the orders of the Lowe r Authori ti es. As AO ha s not exami ned the quantum of deducti on all owabl e under section 80IB bei ng profi t deri ved from Rai l Universal Beam Mill we di rect the AO t o al l ow deducti on under secti on 80IB i n respect of i ncome deri ved 37 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
from that uni t after verifi cati on of the eli gi bl e amount as per l aw. Needl ess to menti on that the AO before determi ni ng the eli gi bl e amount of deducti on shall all ow reasonabl e opportuni ty of heari ng to the assessee. Thus, the ground no.3 of the appeal of the assessee i s treated as all owed.
50. Ground No. 4 of the appeal of the assessee reads as under:
"4. That the assessing officer/ DR P erred on facts and in law in not h olding that incentive/ subsidy in the form of exemption from sales tax, entry tax and electricity duty, amounting to Rs. 120,74,28,854 wa s in the nature of capital receipt not liable to tax.
4.1 That the assessing officer/ DRP erred on facts an d in law in holding that the appellan t was unable to lin k the subsidy/ incentive with any particular 'scheme of subsidy' issued by the State Government.
4.2 That the assessing officer/ DRP erred on facts an d in law in holding that the aforesaid incentive/ subsidy was provided to aid day-to- da y running of the business and was not in the nature of capital receipt.
4.3 That the assessing officer/ DRP erred on facts an d in law in holding that since no amount was actually received by the a ppellant in the form of incentive/ subsidy, any hypothetical/ notional figure could not be treated as incentive/ subsidy and allowed a s reduction from the taxable income.
4.4 That the assessing officer/ DRP erred on facts an d in law in holding that the appellant was taking doubl e benefit of electricity duty by cla iming deduction of incentive/ subsidy and also not deducting the same from profits while computing deduction under secti on 80IA of the Act."
51. The Assessi ng Offi cer observed that i n view of the cl ai m of the assessee regardi ng redu cti on of profi t by way of 38 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
appropri ati on of taxabl e profi t by an amount of Rs.50,03,98,228/- t owards sal es-tax subsi dy/capi tal Reserve and al so of re ducti on at the time of computati on of i ncome at Rs.39,35,77,228/- and Rs.31,34,53,398/- in respect of so call ed Entry-tax and El ectri city Duty subsi dy i n li eu of tax exempti ons are di sall owed. Thus, a ddi ti on of Rs. 1,20,74,28,854/- (50,03,98,228 /- + 39,35,77,228/- + 31,34,53,398/-) i s made to the i ncome for the purpose of arri vi ng at assessed i ncome.
52. The Assessi ng Offi cer noted that the upto the assessment year 2007-08, the assessee company has been cl ai mi ng deducti ons on account of sal es-tax subsi dy, Entry-tax subsi dy and El ectri city Duty subsi dy at the stage of computati on of i ncome. However, from A.Y. 200 8-09 onwards, i ncl udi ng thi s year, the assessee changed i ts method and took the amount equi val ent to the sal es-tax whi ch woul d have been payabl e but for the sai d exempti on, to the Reserve created i n the Bal ance Sheet. Duri ng the year, i n normal course , the enti re amount of sal es procee ds we re credi ted as revenue to the profi t & l oss account. However, at the year end, profi t had been reduced by passi ng journal entry for appropri ati on of Rs.50.04 crores as 'Sal es-tax subsi dy'. By thi s method, the taxabl e profi t was reduced by the equi val ent amount and 'Sal es-tax Subsi dy/Capi tal Reserve' under the heads 'Reserve and Surpl us'.
53. As menti oned earli er, the reducti ons/deducti ons cl ai med are beyond scheme of Income Tax Act. Assessee i s having l uxury of full fl edged Tax department manned by most competent, and well experi enced professi onal s. Therefore, by 39 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
the above a cts of cl ai ming unall owabl e reducti on/deducti on, i n respect of Sal es Tax, Entry Tax and El ectri city Duty, the assessee has made acti ve attempt to evade tax.
54. Before us, the Authori zed Represe ntative of the submi tted as under:
"1. The assessee from the year 2000 onwards had setup new industrial units entailing an investment exceeding Rs.1,000 crores at Raigarh, which is a backward and tribal area of the then State of Madhya Pradesh. The said units included, inter- alia, the following:
i. 1.5 lac Ton capacity Rotary Kiln for manufacturing sponge iron setup in 2000-01;
ii. Captive Power Plant.
iii. 5 lac Ton capacity Universal Beam/ Rail Mill setup in financial year 2003-04.
1.1 The then Government of Madhya Pradesh, vide notifications dated 24.4.2000 (Pg. 1094-1095 of the Additional Evidence filed), exempted the assessee from payment of Central Sales tax and Entry tax involving investment of Rs.1000 crores or more and from payment of Electricity duty vide notification dated 29.07.2000. In the month of November 2000, a new state of 'Chattisgarh' was carved out of part of State of Madhya Pradesh and the 'Raigarh' unit became a part of Chattisgarh. The state of Chattisgarh also endorsed the exemptions granted by the State of Madhya Pradesh.
1.1. Apart from the aforesaid, from financial year 2005-06 onwards the appellant had set up a new industrial unit No. IIIin the State of Chhattisgarh for which the appellant was granted incentives in the form of exemption from payment of entry tax and electricity duty under the Industrial Policy (2004-2009) issued by the Government of Chattisgarh (hereinafter referred to as `Industrial Policy, 2004'). 1.2. Thus, under the aforementioned scheme, during the relevant previous year, the Appellant availed exemption on account of sales tax, entry tax and electricity duty aggregating to Rs.120,74,28,254 (50,03,98,228 + 39,35,77,228 + 31,34,53,398). The said incentives/ subsidies were claimed 40 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
as capital receipts and accordingly, were not offered to tax in the return of income for relevant assessment year.
1.3. It is the case of the Assessee that exemption on account of sales tax, entry tax and electricity duty aggregating to Rs.120,74,28,854/-.in respect of industrial unit at Raigarh, Madhya Pradesh is a capital receipt not liable to tax and should, therefore, be directed to be excluded from the total income of the assessee for the assessment year under consideration. In this regard, Ld. AR placed reliance on a number of judgments, including few Supreme Court judgments also. The Assessee has also filed before us additional evidence in this regard in form of an application filed under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 running from Paperbook pg. 1024 to 1105, the contents of which are reproduced hereinbelow-
1.4. The applicant / assessee craves leave for admission of the following documents (placed in paper book - from pages 1024 to 1105) as additional evidences under Rule 29 of the Income-tax (Appellate Tribunal), 1963 in connection with the captioned appeals :
S.No. Particulars Page No.:
(PB) (PB)
Re : Capital Subsidy
106. Copy of Notification dated 03.06.1993 issued 1024-1031
by Government of Madhya Pradesh for
issuing scheme for Rs.1000 crores plus
integrated steel plants
107. Copy of Notification No.A-3-24-94-ST-V 1032-1046
(108) dated 06.10.1994 issued by the
Government of Madhya Pradesh pursuant to Industrial Policy and Action Plan, 1994
108. Copy of relevant extracts (Preface) of 1047-1050 Industrial Promotion Policy-2004 and Action Plan issued by Government of Madhya Pradesh showing that Industrial Policy, 1994 was applicable till 2003
109. Copy of Notification No.A-31295STV(96) 1051-1062 dated 07.11.1997 issued by the Government of Madhya Pradesh in respect of exemption of sales entry tax (not applicable on assessee) 41 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
110. Copy of correspondence made by assessee 1063-1080 to then Chief Minister of Madhya Pradesh / senior officials of Madhya Pradesh State Industrial Development Corporation during July 1998 to Nov. 1999 for formulation of special incentive package for the assesse
111. Copy of letters written by assessee to then 1081-1082 Chief Minister and Government official post issue of specific notifications dated 24.04.2000 granting exemption to the assessee
112. Copy of letter dated 17.05.2002 by assessee 1083-1084 to Secretary Energy, Chhatisgarh requesting for grant of exemption from electricity duty for 15 years as against 10 year granted vide notification dated 29.07.2000.
113. Notification issued by Government of 1085-1086 Chhatishgarh for granting duty exemption for a period of 15 years
114. Copy of Memorandum of Understanding 1087-1091 dated 21.05.2001 entered into between assessee and Government of Chhattisgarh whereby the incentives / benefits given by the Government of Madhya Pradesh have been approved / adopted by the Chhattishgarh Government.
115. Copy of letter dated 02.05.2002 issued by 1092 Department of Commerce and Industry, Government of Chattisgarh approving the incentive / subsidies granted vide notification dated 24.04.2000 issued by the earlier Government of Madhya Pradesh.
116. Copy of letter dated 11.11.2004 issued by 1093 Commercial Tax Department, Raigarh certifying investment of Rs.1027 crores by the assessee till the year 2003-04.
117. Copy of notice issued by the Commercial Tax 1094-1095 Department in March 2013 for F.Y.2008-09 requiring the assessee to show cause as to why the Central Sales Tax may not be recovered for non-fulfillment of conditions in Notification No. (40) dated 24.04.2000.
118. Copy of reply dated 07.05.2013 filed by the 1096-1098 assessee in response to aforesaid notice 42 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
issued by Commercial Tax Department
119. Copy of order dated 25.09.2013 passed by 1099 the Commercial Tax Department dropping aforesaid proceedings.
120. Copy of notice issued by the Commercial Tax 1100-1101 Department in March 2013 for F.Y.2008-09 requiring the assessee to show cause as to why the Entry Tax may not be recovered for non-fulfillment of conditions in Notification No. (40) & (41) dated 24.04.2000
121. Copy of reply dated 07.05.2013 filed by the 1102-1103 assessee in response to aforesaid notice issued by the Commercial Tax Department
122. Copy of order dated 25.09.2013 passed by 1004 the Commercial Tax Department dropping aforesaid proceedings.
123. Copy of assessment order dated 16.04.2012 1105 passed by the Commercial Tax Department, Raigarh duly quantifying the sales exempt from central sales tax of Unit II made by the assessee for year ending 31.03.2009
55. We find from the records that this is a repetitive year issue and in all fairness, it may be pointed out that this issue of treatment of subsidy as capital or revenue receipt has been decided against the Appellant by the Hon'ble Delhi Bench of the Tribunal in appellant's own case for assessment year 2004-05 in ITA No. 3319/ Del/ 2008 and also in the decision of the Assessee for AY 2008-09 wherein the aforementioned additional evidence has been admitted and thereafter this issue has been decided against the Assessee. Tribunal has held that:-
"1.5 The Ld. AR also stated that the decisions of the Tribunal are only in the context of Unit II and are not at all in the context of Unit III, which was set up subsequently in the State of Chhattisgarh. Therefore, the Ld. AR submitted that the eligibility of the Appellant to claim exemption in respect of Unit III may kindly be considered independent of the decision of the Tribunal in the context of other units. However, it is seen that the general principle is the same as regards taxation and determination of subsidy as revenue receipt vis-à-vis capital receipt and thus, we are inclined to 43 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
follow the order of ITAT as adjudicated in Assessee's own case for earlier year."
56. Facts bei ng i denti cal , respectfull y foll owi ng the precedent we confi rm the order of the AO an d di smi ss the ground no. 4 of appeal of the assessee.
57. Ground No. 5 of the appeal of the assessee reads as under:
"5. That the assessing officer/ DR P erred on facts and in law in not allowing deduction in respect of writ e back of an amount of Rs.3,92,93 ,000, consistent with the finding in the earlier assessment years that deduction is not allowable in respect of deferment of employee compensation expenditure incurred on account of provision of Empl oyee Stock Option Scheme ('ESOS') to employees.
5.1 That the DRP grossly e rred on facts and in law in not allowing af oresaid de duction by holding that the said issue stands decided in favour of Revenue by the orde r of the CIT(A) in the preceding assessment years, without appreciating that t he said obse rvation actually supports the appellant's aforesaid claim of deduction."
58. The Authori zed Representati ve of the assessee submi tted that ESOS expendi ture has been di sall owed in the earlier assessment years and duri ng the current a ssessment year the assessee has wri tten back Rs. 3,92,93,000/- on account of Empl oyee Stock Opti on Scheme (ESOS). The assessee has not accepted the di sall owances made in earl ier years an d has fi l ed appeal i n the matter. Si nce, the i ssue i s pendi ng before the appel l ate authori ty, no acti on i s taken on thi s i ssue i n the current year.
44 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
59. It was submi tted that the DRP rejected the objecti ons of the assessee by observi ng as under:-
"The DRP considere d the facts of the case ca refully. It was noticed that in the e arlier assessment yea rs, such amount clamed as deducti on by the assessee was not allowed by the Assessing Officer, which was affirmed in appeal by the CIT(A). Against the orde r of the CIT(A), the assessee has preferred a ppeal before the IT AT, Delhi which is pending adjudication. Since, the issue stands decided in favour of the revenue, by the CIT(A) , the objection of the a ssesse e is rejected."
60. The Assessi ng Offi cer fol l owi ng the above di recti ons of the DRP, hel d that no cogni zance i s taken i n respect of the above sum of Rs.3,92,93 ,000/- wri tten back by the assessee on account of Empl oyee Stock Opti on Scheme. Even, i f the assessee a ccepts the versi on of the Department i n earli er years, thi s sum of Rs.3,92,93,00 0/- cannot be reduced from the assessed i ncome because in those years the assessee i s cl ai mi ng deducti on (without any out-goi ng from the profi t) over and above normal income and department is just rejecti ng such cl ai m. Hence, there i s no "addi ti on" i n those years.
61. Before us, the Ld. Authori zed Representati ve submi tted that an ESOS scheme i s an employee compensati on scheme, i ntendi ng to i ncul cate a sense of bel ongi ngness and instill a feeling of ownershi p i n the employees to create partne rshi p wi th the empl oyees, for transi ti on from bei ng mere 'empl oyees' to 'stake h ol ders'. Once grants are i ssued by the Assessee t o i ts empl oyees under the ESOS, i n so far as the assessee i s concerned, the li abili ty crystalli zes i n as much as the opti on to 45 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
exerci se such grant is wi th the empl oyees on whi ch the Assessee has no control . Si nce such li abili ty towards empl oyee compensati on, on the grant of opti on, can be esti mated wi th reasona bl e certai nty, a li abili ty towards the sai d compensati on defi nitel y ari ses on the grant of opti on.
62. Furthermore, the expendi ture i ncurred is towards empl oyee compensati on and the sai d expense is merely di scharged by grant of opti ons and subsequent i ssuance of shares unde r ESOS. By vi rtue of ESOS, the empl oyee is remunerated to the extent of difference between the i ssue pri ce and the ma rket val ue of shares, whi ch represents the benefits to the empl oyees. The i ssue of shares i s onl y a mode/manner of remunerati ng the empl oyee. The expendi ture i s thus i ncurred and the same has been cl aimed i n the earli er assessment years. That, consi stent wi th the sai d approach , the Appel l ant for the year under consi derati on has wri tten back an amount of Rs. 3,92,93,000/- to the Profi t & Loss account as i ncome because onl y a few opti ons were exerci sed by the empl oyee against whi ch shares were all otted and bal ance opti ons were l apsed/wi thdrawn duri ng the peri od.
63. Ld. Authori zed Repre sentati ve, duri ng the course of the heari ng, submi tted that expense i ncurred on account of di scount on ESOS i s an al l owabl e expendi ture i n l aw. Reli ance i n thi s regard i s pl aced on the followi ng case l aws:
Ø Biocon Ltd. vs. DCIT [2013] 144 ITD 21(Bangalore - Trib.) (SB) Ø DCIT v. Kota k Mahindra Bank Lt d. [2018] 168 ITD 529 (Mumbai - Trib.) Ø Lemon Tree Hotels Ltd. v. Addl. CIT - ITA No. 4588/DEL/2013 46 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Ø Religare C ommodities Ltd. v. AC IT and Ors. - IT A No. 2283/DEL/2013
64. It was further submi tted that, wi thout prejudi ce, the AO/DRP have e rre d on facts a nd in l aw in not all owing deducti on in respect of wri tten back amount in thi s year consi stent wi th the finding i n the earli er assessment years that deducti on i s not all owabl e i n respect of deferment of empl oyee compensati on expendi ture. That, whil e di sall owi ng the deducti on, the stand of the Revenue i n earli er assessment years to not al l ow deducti on on a ccount of di scount on ESOP, actuall y supports the cl ai m of the assessee for all owi ng deducti on in the present assessment year. In the rel evant assessment orde r, AO ought to ha ve all owed deducti on of wri te back of the aforesai d amount of Rs.3,92,93,000/-, consi stent wi th the finding i n the earli er assessment years that de ducti on i s not all owabl e i n the year of grant of opti ons.
65. It was argued that thi s i ssue i s covered i n favour of the Assessee by vari ous deci si ons of the Tri bunal i ncl udi ng a Speci al Bench deci si on wherein thi s i ssue was di scussed at l ength. In the case of Bi ocon Lt d. vs. DCIT [2013] 144 ITD 21(Bangal ore - Tri b.) (SB), Banga l ore Speci al Bench di scussed thi s i ssue at l ength i ncl udi ng all the arguments and submi ssi ons of the Revenue/Department and thereafte r concl uded that thi s i s an all owable expense u/s 37 of the Act. It was hel d as under:
"9.2.5 The core of the arguments of the ld. DR in this regard is two-f old. First , that it is not an expenditure in itself and secon dly, it is a short capital re ceipt or at the most a sort of capita l expenditure. In our considere d opinion both the legs of this contention are legally unsustainable.47 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
9.2.6 There i s no dou bt that the amount of share premium is otherwise a capital receipt and hence not chargea ble to tax in the hands of company. Th e Finance Act, 2012 has inserted clause (viib) of section 56(2) w.e.f. 1.4.2013 prov iding that: 'where a company, not being a compa ny in which the public are substantially interested, receives, in any previous yea r, from any pe rson being a re sident, any considerati on for issue of shares that exceeds the face value of such shares, the aggregat e consideration received for such shares as exceeds the fair market value of the shares', then such excess share premium shall be cha rged t o tax unde r the head 'Income f rom other sou rces'. But f or that, the amount of share premium has always been understood and accepted as a ca pital receipt. If a company issues shares to the public or the existing shareholde rs at less than the ot herwise prevailing premium due to market sentiment or otherwise , such short receipt of premium would be a case of a receipt of a lower amount on capital account. It i s so be cause the object of issuing such share s at a lower pri ce is nowhere directly connected with the earning of income. It is in such like situation that the contention of the learned Depa rtmental Representative would properly fit in, thereby debarring the company from cl aiming any deduction towards discounted premium. It is quite basic that the object of issuing shares can never be lost sight of. Having seen the rationale an d modus operandi of the ESOP, it becomes out-and-out clear that when a company undertakes to issue shares to its employees at a discounted pre mium on a future date, the primary object of this exercise is not to raise share capital but to earn profit by securing the consistent and concentrate d efforts of its dedicated employees du ring the vesting period. Such discount is const rued, both by the employees and company, as nothing but a part of pa cka ge of remuneration. In other w ords, such discounted premium on shares is a substitute to giving direct incentive in cash for availing the services of the employees. There is no difference in two situations viz., one, when the company issues shares to publi c at market pri ce and a part of the premium is given 48 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
to the employees in lieu of their services and two, when the shares are directly issue d to employees at a reduced rate. In both the situations, the employees stand com pensated for their effort. If under the first situation, the company, say, on receipt of premium amounting to Rs. 100 from issue of share s to public, gives Rs. 60 as incentive to it s employees, such incentive of Rs. 60 would be remuneration to employees and hence deductible. In the same way, if the company, instead, issues shares to its employees at a premium of Rs. 40, the discounted premium of Rs. 60, be ing the difference between Rs. 100 and Rs. 40, is a gain nothing but a different mode of awa rding remuneration to employees for their continued se rvices. In both the cases, the object is to compensate employees to the tune of Rs. 60 . It follows tha t the discount on premium under ESOP is simply one of the modes of compensating the empl oyees for t heir services and is a part of their remunera tion. Thus, the contention of the ld. DR that by issuing shares to employees at a discounted premium, the company got a l ower capital receipt, is bereft of an force . The sole object of i ssuing sha res to employees at a discounted premium is to compen sate them for the continuity of their se rvices to the company. By n o stretch of imagination, we ca n describe such discount as either a sh ort ca pi tal receipt or a capital expenditure. It is nothing but the employees cost incurred by the company. The substance of this transaction is disbu rsing compensation to the employees for their services, for which the form of issuing shares at a discounted premium is adopted.
9.2.7 Now we espouse the second pa rt of the submission of the ld. DR in this rega rd. He canvassed a view that an expenditure denotes "paying out or away" and unless the money goes out from the asse ssee, there can be no expenditure so as t o qualify for deduction u/ s 37. Sub-secti on (1) of the section provides that any expenditure (not being expenditure in the nature describe d in sections 30 to 36 and not being in the nature of capital expenditure or pe rsonal expenses of the assessee), laid out or expen ded wholly and 49 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
exclusively for the purposes of the business or professi on shall be allowed in computing the income chargeable under the hea d " Profits and gains of business or profession" . To put it differently, an expenditure must be laid out or expended wholly and exclusively for the purpose of business so as to be eligible for deduction u/s 37(1). There is absolutely no doubt that section 37(1) talks of granting deduction for an 'expe nditure', and the Hon'ble Supreme Court in Indian Molasses C o. (P.) Ltd. (supra) has described 'expe nditure' to mean what is 'pai d out or away ' and is something which has gone irretrieva bly. However, it is pertinent to note that this section does n ot restrict paying out of expenditure in cash alone. Section 43 contains the definition of certain te rms relevant to income from profits of business or profession cove ring sections 28 to 41. Se ction 37 obv iously falls under Chapter IV- D. Sub-section (2) of section 43 defines "paid" to mean: "actually paid or i ncurred according to the method of accounting upon the basis of which the profits or gains a re computed under the head 'profits and gains of business or professi on'." When we read the definition of the word "paid" u/s 43(2) in juxtaposition to secti on 3 7(1), the position which emerges is that it is not only paying of expenditure but also incurring of the expenditure which entails deduction u/s 37(1) subject to the fulfilment of other conditions. At t his juncture, it is imperative to note that the word 'expenditure' has not been defined in the Act. However, sec. 2(h) of the Expenditure Act, 1957 defines 'expenditure' as :
'Any sum of money or m oney's worth spent or disbursed or for the spending or di sbursing of which a liability has been incurred by an assessee......'. When section 43(2) of the Act is read in conjunction with section 37(1), the meaning of the term 'expenditure' turns out to be the same as is there in the aforequote d pa rt of the definition under secti on 2(h) of the Expenditure Act, 19 57, viz., n ot only 'paying out' but also 'incurring'. Coming back to ou r context, it is seen that by undertaking to issue shares at discounted premium, the company does not pay anything to its employees but incurs obligation of issuing shares at a discounted price on 50 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
a future date in lieu of their services, which is nothing but an expenditure u/s 37(1) of the Act."
66. It was submi tted that foll owing the, Mumbai Tri bunal deci si on i n DCIT vs. Kotak Mahindra Bank Ltd. - [2018] 89 taxmann.com 223(Mum), the 'Spe ci al Bench' of the Tri bunal i n the case of Bi ocon Ltd. v. Dy. CIT (LTU) [2013] 144 ITD 21/35 taxmann.com 335 (Bang.) after deli berati ng at l ength on the i ssue as to whether the assessee was enti tl ed to cl ai m the di scount on ESOS as an expendi ture under secti on 37(1), or not, had therei n answered the sai d i ssue i n affi rmative and concl uded that the same was a ll owabl e as an expendi ture under secti on 37(1) in the hands of the assessee.
67. Hence, i n vi ew of the di rect Speci al Bench deci si on on thi s i ssue, deducti on of the cl ai m shoul d be all owed u/s 37 of the Act for the year unde r consi derat i on. Needl ess to say that if the Assessee succeeds i n i ts appeal s of earli er AYs, then thi s amount shall be taxabl e i n thi s year. However, i f Assessee fai l s i n the appeal s of the earli er years, then thi s amount added back cannot be treate d as i ncome and hence shal l not be taxabl e i n thi s year. Wi th these di recti ons, thi s ground of appeal shoul d be all owed.
68. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. The cl ai m of the assessee is it has credi ted Rs.3,92,93,000/- i n the profi t and l oss account as wri te back on account of empl oyee stock opti on scheme (ESOS). The assessee further cl aimed that when provi si on was made on account of ESOS i n earl i er years by way of debi t to i ts profi t and l oss account the sai d amount was not all owed as deducti on 51 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
to the assessee i n the assessment of earli er years. In ou r consi dered vi ew when an amount i s not all owed as deducti on when i ts provi si on was made i n the year of provi si on then wri te back of the very same am ount i n the subsequent year cannot be i ncl uded i n the total income of the subse quent year. We therefore set a si de the orders of the l ower authori ti es on thi s i ssue and restore the matte r back to the fil e of the AO for adjudi cati on afresh i n li ght of the above obse rvati on. The AO shall veri fy whether the amount wri tten back thi s year was all owed as deducti on or not i n the year in whi ch provi si on for the same was made by the assessee. Further, the assessee has submi tted before us that the di sall owance made i n earli er years when provi si on was made i s chall enged in appeal and the appeal i s pending before the appell ate authori ty. We woul d li ke to cl ari fy here that if after appeal the assessee i s all owed deducti on i n the year of provi sion i n the appeal then whil e gi vi ng effect to that order the AO shall bri ng the correspondi ng amount of wri te back i n the year under consi derati on to tax .Thus, thi s ground no. 5 of the appeal of the assessee i s treated as all owed.
69. Ground No. 6 of the appeal of the assessee reads as under:
"6. That the assessing officer/ DRP erred on facts and in law in disall owing a sum of Rs.21,54,00 ,000 under section 14A of the Act, as per the provisi ons of Rule 8D of the Income Tax Rules, 1962 ('the Rules').
6.1 That the assessing office r/ DRP e rred in computing disallowance unde r section 14A by invoking provisions of Rule 8D of the Rules, without appreci ating that conditions precedent for applying provisi ons of the said Rule as contained in sub-52 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
sections (2) and (3) of that section were not satisfied."
70. The Assessi ng Offi cer observed t hat from the perusal of the Bal ance-Sheet of the assessee company for the peri od endi ng as on 31.03.2010, i t was noti ced that the assessee has shown other i nvestments at Rs.1233 crore on whi ch di vi dend i ncome has been earned. Si nce, the di vi dend i ncome i s exempt u/s 10(33)/(34) of the Incom e-tax Act, 1961 and not i ncl udabl e i n the total i ncome, expenses correspondi ng to the sai d i nvestment are not all owabl e u/s 14A of the Act. Assessee was, therefore , asked to show ca use as to why the expenses attri butabl e to the aforesai d i nvestment shoul d not be di sall owed as pe r the provi si ons of Secti on 14A of the Act r.w.r. 8D of the Income-tax Rul es, 1962.
71. Further, the Assessi ng Offi cer observed that the assessee has made i nvestment in shares and has ea rned di vi dend i ncome of Rs.90.14 crore whi ch is exempt. The assessee has not gi ven any basi s as to suo moto di sall owance of Rs.2,65,715/- made by the a ssessee u/s 14A of the Act. Therefore, he was not sati sfi ed wi th the correctness of cl ai m made by the assessee.
72. The Assessi ng Offi cer further obse rved that as per detai l s gi ven by the assessee, the pay ments have been made on vari ous dates. H owever, the sou rce of the same has n ot been provi ded. F or exampl e, the asse ssee had made payment of Rs.19 crore on 17 .03.2006 and an other payment of Rs.19 crore on 17.03.2006. The assessee has not gi ven detail s as to where thi s money came from.
53 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
73. The Assessi ng Offi cer obse rved that i nstead of gi ving speci fi c detail s as to what was source of sai d money wi th respect to statement of bank a ccount from where the sai d payment has been made and descri pti on of entri es responsi bl e for bui l di ng up of the bal ance from whi ch parti cul ar payment was made, the assessee gave general descri pti on.
74. The Assessi ng Offi cer further observed that the assessee has gi ven vague reply. The repl y i s onl y regardi ng payment of Rs.325.90 crore. However, the i nvestment i s Rs.1233 Cr. The assessee i s shyi ng away from gi ving speci fi c detail s, proba bl y, for fea r of detecti on of fact tha t actuall y, the payment has been made from general pool of funds whi ch does i ncl ude borrowe d fund, on whi ch i nterest i s bei ng pai d. Since, the assessee has not kept any such detail s in i ts books of account, no opti on but to concl ude that cl ai m of the assessee rega rdi ng correspondi ng expenses i s inaccurate and unreli abl e. Si nce, speci fi c data/cal cul ati on for arri vi ng at accurate expendi ture i ncurred to ea rn the exempt i ncome whi ch i s not formi ng pa rt of 'total i ncome' i s not avail abl e as per books of account, the method prescri bed under Rul e 8 i s the onl y opti on.
75. The Assessi ng Offi cer observed that as per Secti on 14A(2) of the Act, the Assessi ng Of fi cer shall determi ne the expendi ture i ncurred i n rel ati on to such i ncome whi ch does not form pa rt of t otal i ncome and the provi si ons of Sub-secti on (2) shall al so appl y in rel ati on to a case where an assessee cl aims no expendi ture has been incurred by hi m in rel ati on to exempt i ncome.
54 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
76. The Assessi ng Offi cer al so observe d that the DRP rejected the objecti ons of the assessee by obse rvi ng that once the Assessi ng Offi cer i s sati sfi ed that some expendi tures has bee n i ncurred in rel ati on to earni ng off exempt i ncome, he is empowered to compute di sall owance u/s 14A of the Act r.w.r. 8D. Therefore, the AO made a ddi ti on of Rs.21.54 crores u/s 14A of the Act whi ch was comput ed by hi m under Rul e 8D of the Income-tax Rul es, 1962 whi ch compri sed of di sall owance of i nterest of Rs.15.87 crores and addi ti on of 0.5% of ave rage val ue of i nvestment of Rs.5.67 crores.
77. Before us, the Authori zed Repre se ntative of the assessee contented that the AO has not recorde d any speci fi c sati sfacti on in the enti re assessment orde r as to the i ncorrectness of the suo m oto di sall owance made by the Assessee i n i ts books of a ccounts and stated that thi s i ssue i s covered i n favour of the Asse ssee i n vari ous judgments such as Godre j and Boyce Manufacturi ng Co vs. CIT [394 ITR 449] and HT Medi a vs. CIT [399 ITR 576] and a recent deci si on of the Hon'bl e Del hi Hi gh Court i n the case of PCIT v. Hi ndustan Cl ean Energy Ltd. [ITA No. 268 of 2018]. , the Hon'bl e Court has hel d as under:
"In the present case, however, t he Assessing Officer ('AO') without recording required satisfaction on "having regard to the accounts of the Assessee, as placed bef ore him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of t he Assessee", ha d invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contra ry to law, and t herefore, there i s no merit in the present appeal."55 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
78. The Ld. Authori zed Representati ve of the assessee further contended that even i n the precedi ng assessment year 2008-09 i n the order pa ssed u/s 143(3), t he AO a ccepted the suo mot o di sall owance of Rs. 1,37,568/-, whi ch was made on si mil ar basi s and there i s no change in the investment i n thi s year. As regards purported i nterest expendi ture, the Ld. AR contended that i t i s a settl ed l egal posi ti on that in the event the Assessee has own funds, the same woul d be taken to have been used for making investment, and therefore, no di sall owance on account of i nterest expendi ture ought to be made, especi ally when the avail abl e funds exceed the quantum of i nvestment yiel di ng exempt i ncome. It was submi tted that as agai nst the total i nvestment of Rs. 1233.40 C rores, the Asse ssee had avail abl e funds of Rs. 4585.85 crores. The Hon'bl e Bombay Hi gh Court i n the case of CIT v. HDFC Bank Lt d. Reported i n 366 ITR 505 (Bom) and Reli ance Utili ti es Ltd vs. CIT reported i n 313 ITR 340 (Bom) has hel d that there is presumpti on that the i nvestments are made from sel f owned funds unl ess the contra ry i s proved. More over, on the peculi ar facts of the present case , i t will kindl y be appreci ated that the Assesse e Company prom oted Ji ndal Power Li mited (JPL) to buil d 1000 MW Power Proje ct in Rai garh Di stri ct in the State of Chatti sgarh consi deri ng the i ncreasi ng requi rement of power i n the Assessee 's steel manufacturi ng acti viti es. Thus the busi ness of the assessee company and JPL is li nked and assessee company acqui red a def i nite business advantage or benefit from such i nvestment and so the di vi dend yi el d on such i nvestment is not the sol e benefit earned from such i nvestment, however, the same is on account of commerci al expedi ency. Lastl y and without prejudi ce to the above, the 56 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Assessee submi ts that the AO has erred i n appli cati on of Rul e 8D of the Rul es, wi th regard to cal cul ati on of the average val ue of i nvestment prescri bed i n the formul ae. In thi s regard, the Assessee pl aces reli ance on the deci si on of the Hon'bl e Delhi Hi gh Court i n ACB Indi a Ltd vs. ACIT [374 ITR 10 8 (Del hi )] and i n the case of PC IT v. M/s Ca raf Buil ders & Constructi ons Pvt. Ltd. [ITA No. 1260 of 2018]. Del hi ITAT Speci al Bench deci si on i n the case of ACIT v. Vi reet Investment Pvt. Ltd. [[2017] 165 IT 27 (SB)] has taken the same vi ew.
79. It was argued that the assessee made di sall owance of Rs.2,65,715/- in the return. The assessee arri ved at thi s amount representi ng the proporti onate sal ary pai d to the concerned person l ooki ng after investment i n mutual funds. The AO has not been abl e to bri ng any adverse materi al or facts on record. No speci fi c reason as to why di sall owance made i s comi ng out of the order. In the assessment order, the AO has not deal t with the suo moto di sall owance made by the Assessee, or a s to why i t was i ncorrect. Thi s i ssue i s now covered i n favour of the Asse sse e by Del hi Hi gh Court i n the case of PCIT v. Hindustan Cl ean Energy Ltd. [ITA No. 268 of 2018] wherein the Court has hel d as under:
"In the present case, however, the Assessing Ofice r ('AO') without recording required satisfaction on "having regard to the accounts of the Assessee, as placed bef ore him, it is not possible to be generate the requisite satisfaction with regard to the correctness of the claim of t he Assessee", ha d invoked and applied Rule 8D as a mandatory provision applicable in all cases of exempt income. Action of the AO was contra ry to law, and t herefore, there i s no merit in the present appeal."57 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
80. Thi s i ssue was di scussed i n detail in HT Medi a vs. CIT [399 ITR 576] wherei n Del hi Hi gh Court hel d that-
"30. Rule 8D(1) states more or less what Section 14 A (2) of the Act states. It re quires the AO to fi rst examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee's claim of expe nditure or (b) the claim made by the assessee that no expenditure has been incurred. Unless this stage is crossed i .e. the stage of the AO recording that he is not satisfied with the clam of the Assessee in the m anner indicated i .e.
after examining the Assessee's accounts, the question of applying the formula under Ru le 8D (2) does not arise. That this is a mandatory pre-requisite for applying Rule 8D (2) is fairly well-settled."
81. The same has al so been hel d by Hon'bl e Apex C ourt i n the case of Godrej and Boyce Manufa cturi ng Co vs. CIT [394 ITR 449] and same vi ew has al so been taken by Punja b an d Haryana Hi gh Court. Appl yi ng thi s Del hi Bench of the Tri bunal i n the case of Associ ated Law Advi sers vs. ITO - [2017] 87 taxmann.com 148 (Del hi - Tri b.) has hel d that-
"16. We have heard the rival su bmissions and also perused the relevant find given in the impugned orde r. The assessee before the Assessing Officer had categori cally submitted that the looking to the nature of expenditure debited in the profit & loss account as well as pointed from other details like bank statements and balance sheet that no expenditure whatsoever has been incurred for earning of income by way of div idends which very paltry sum. It was further su bmitted that the income in respect of units of mutual funds and gross amount of income has been offered for tax ation. After such a claim, under the provisions of sub section (2) & (3) of section 14, it was incumbent upon the Assessing Officer having regard to the accou nts of the assessee and the nature of expenses debited, to examine the correctness of the claim that whether any expenditure in relation to the exempt income has 58 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
been incurred or not. If the Assessing Officer fails to satisfy himself in this rega rd, t hen ostensibly he cannot procee d to apply rule 8 D. The law does not envisages that wherever there is an exempt income, expenditure has to be disallowed. It is require d to be seen, whether expenditure has been incurred by the assessee in relati on to the ea rning of exempt income or n ot and this can be examined having rega rd to the accounts of the assessee and the nature of expenditure debited. Here in this case, the Assessing Officer has failed to satisfy himself about the correctness of the assessee 's cla im and, therefore , in view of the principle laid down by the Hon'ble Delhi High Court in the case of H.T. Media Ltd. v. Pr. CIT [2017] 85 taxmann.com 113 (Delhi), the Assessing Officer cannot proceed to ma ke disallowance unde r secti on 14A. The Hon'ble Jurisdictional High C ourt has once again reiterated that it is mandatory and incumbent upon the Assessing Officer t o re cord such satisfaction and in the absence of such 'satisfaction' no disallow ance can be made unde r secti on 14A. The Hon'ble High Court concluded that; firstly, w here there was a failure by Assessing Officer to comply with mandatory re quirement of section 14A(2) read with rule 8D(1)(a) to record his satisfaction as require d thereunder, then question of appl ying rule 8D(2)(iii) does n ot a rise; and secondly, where Assessing Officer had failed to establish any direct nexus between investments made by assessee and intere st expenditure incurred, then it not correct t o remand the matter concerning deletion of disallowance of interest under clause (ii) of rule 8D(2) to Assessing Officer for fresh dete rmination. Accordingly, on the facts of the present case di sallowance of Rs. 71,122/- made by the Assessing Officer is directed to be deleted. Accordingly, the appeal of the assessee is allowed."
82. On the other hand, the l d. Depa rtmental Representative reli ed on the orders of the l ower authori ti es.
59 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
83. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. In the i nstant case the assessee company earned di vi dend i ncome of Rs.90.14 crores whi ch i s exempt i ncome and i ncl udi bl e in the total i ncome. Agai nst the sai d i ncome the assessee Suo-m oto di sall owed expenses to the tune of Rs.2,65,715/- i n the return of i ncome under secti on 14A of the Act. The AO i n the impugned order worked out the amount di sall owabl e under secti on 14A read wi th rul e 8D at Rs.21.54 crores. We fi nd that the condi ti on precedent for i nvoki ng provi si ons of rule 8D i s that the AO must record a sati sfacti on that the amount of di sall owance cl ai med i n the return of i ncome i s not correct. Wi thout recordi ng such a sati sfacti on the AO cannot i nvoke provi si ons of Rul e 8D. Above vi ew fi nds support from the deci si on of the Hon'bl e Juri sdi cti onal Hi gh Court i n the case of COMMISSIONER OF INCOME TAX- I vs. ABHISHEK INDUSTRIES LTD. R eported i n 360 ITR 652 an d COMMISSIONER OF INCOME-TA X vs. KAPSONS ASSOCIATES report ed in 381 ITR 204. In the instant case on perusal of the i mpugned order of assessment we noti ce that no such sati sfacti on was arri ved at by the AO. In the ci rcumstances di sall owance under secti on 14A of the Act of Rs.21.54 crores in pl ace of Rs.2,65,715/- cl aimed by the assessee i n the Return Income i s bad i n l aw and unsustai nabl e. We therefore del ete the same and di rect the AO to restri ct the di sall owance under secti on 14A of the act to R s.2,65,715/- . Thus, thi s ground no. 6 of the appeal of the assessee i s all owed.
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84. Ground No. 7 of the appeal of the assessee reads as under:
"7. That the assessing officer/ DR P erred on facts and in law in disallowing an amoun t of Rs.42 lacs on account of depreci ation on alle ged non-functional units.
7.1 That the assessing officer/ DRP e rred in law in not appreciating that the assets of rion-functional units were used by the appellant during the relevant assessment year.
7.2 That the DRP e rre d on facts a nd in law in alleging that the appellant failed to establish that the non-functional units were ready to use.
7.3 That the assessing officer/ DRP e rred in law in disallowing the aforesai d clai m of depreciation without appreciating that the said claim had consistently been allowed by the Revenue in assessment orders passed f or preceding assessment years.
7.4 Without prejudice, the assessing officer erre d on facts in disall owing Rs.42 lacs in respect of depreciati on on non-functional. units, without appreci ating that the said amount repre sents depreciati on under the Companies Act, 1956, which was suo Motu disall owed by th e appellant in the return of income, and disall owance, if any, could have been made for depreciation claimed under the provisi ons of the Act."
85. The Assessi ng Offi cer observed th at duri ng the year, the assessee has cl aimed depreci ati on on non-functi onal uni ts A, B & C. The asse ssee was re qui red to expl ai n as to why depreci ati on on non-functi onal Uni ts shoul d not be di sall owed. The assessee submi tted that Part-A consi st of 2 DG Sets of capaci ty 3.5 MW/hour. These a re stand by DG sets mai ntained by the assessee for generati on of el ectri ci ty i n case need 61 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
ari ses. Duri ng the assessment year 2009-10, the assessee has cl ai med onl y depreci ati on of Rs.0.42 crore . It has been hel d i n vari ous judgments that the user of the asset shoul d be understood i n wi de sense so as t o embrace passi ve as well as acti ve user. An asset can be sai d to be i n use when i t i s kept ready for use. If a ma chi nery i s kept ready f or use at any moment i n a parti cul ar factory, under an express agreement, from whi ch taxabl e profits are earned, the machi nery can be sai d to be "use d" for the purpose of busi ness whi ch earns profi ts, al though i n fact i t has not worked duri ng the year.
86. It was further submi tted that part-B&C a re two wa ste Head Recovery Boi l ers of capaci ty 35 Tons each for stea m generati on whi ch i s bei ng suppli ed/transferre d to other powe r pl ants uni ts. Duri ng the year assessee has earne d revenue of Rs.5.37 crore s and Rs.8 .09 crore s respecti vely from transfer of steam generated i n boil ers of these power pl ants. Therefore, i t was submi tted that Part-A, B & C are functi onal /operati onal Uni ts and depreci ati on shoul d be all owed accordi ngl y.
87. The Assessi ng Offi cer after consideri ng the repl y of the assessee observe d that the assessee coul d not show that tw o DG sets whi ch are call ed Part-A were used even for a si ngl e day. In facts, assessee has al so filed the same repl y i n the l ast so many years. It goes to sh ow that the assets were not in use for so many years.
88. The Assessi ng Offi cer further observed that the DRP rejected the objecti ons of the assessee observi ng that the assessee was re qui red to prove before the Assessi ng Offi cer that the machinery of the non-functi onal uni ts was ready for 62 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
use as the same was i n the nature of standby asset to av oi d di srupti ons i n busi ness operati on. In absence of the same, the Assessi ng Offi cer was not mi sdi rected in di sall owing depreci ati on.
89. Therefore, the Assessi ng Offi cer di sall owed Rs.42 l acs on account of depre ci ati on on assets of non-functi onal uni t Part-A.
90. It was submi tted by the AR that the expressi on "used for the purpose s of the busi ness" has been judi ci ally i nterpreted to i ncl ude a case where the asset i s kept ready for use, but i s not actuall y put to use. The foll owi ng deci si ons support the sai d proposi ti on:
Ø CIT vs. Viswanath Bhaskar Sath e (1937) 5 ITR 621 (Bom) Ø CIT vs. Dalmia Cement Ltd. (1945) 13 ITR 415 (Pat) Ø Machinery Manufacturers C orporat ion Ltd. v. CIT:
31 ITR 203 (Bom.) Ø Whittle Anderson Ltd. vs. CIT (19 71) 79 ITR 613 (Bom) Ø Capital Bus Se rvice P. Ltd. vs. CIT, (1980) 123 ITR 404 (Del) Ø CIT vs. Vayithri Plantations Ltd. (1981) 128 ITR 675 (Mad) Ø CIT vs. G.N. Agrawal (Individual): 217 ITR 250 (Bom.) Ø CIT vs. India Tea & Timbe r Tradi ng Co. 221 ITR 857(Gau) Ø CIT vs. Geo Tech Construction Corpn: 244 ITR 452 (Ker.) Ø CIT vs. Refrigeration and Allied Industries Ltd.
(2001) 247 ITR 12 (Del) Ø CIT V. Swa rup Vegetable Product s India Limited:
277 ITR 60 (All.) Ø ReflexionsNarayani Impex (P) Ltd. v. ITO: 2013 (3) TMI 434 63 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Ø CIT vs. OswalWoollen Mills Limite d: 206 CTR 141 (P&H) Ø CIT vs. Norplex Oak Indi a : 198 Taxman 470 (Cal) Ø CIT vs. Premier Industries (India ) Ltd.: 323 ITR 672 (MP) Ø CIT vs. Panacea Biotech Ltd.: 324 ITR 311 (Del.) Ø CIT vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Del) Ø ACIT v. Chennai Petroleum Corporation Ltd.: 126 TTJ 865 (Chennai) (ITAT)
91. It was further submi tted by AR that assets of Part A of non-functi onal uni ts were kept as standby asset s for the purpose of sm ooth functi oning of busi ness of the Assessee. It i s, however, to be n oted that the uni ts of the Assessee we re kept ready f or use si nce the sam e were meant t o be used i n case of an exi gency. The units were meant to be operati onal to avoi d any di srupti on ari si ng i n case of any fai l ure, whi ch i tsel f corroborates that the uni ts were ready to use or el se the whol e purpose of meeti ng an emergency stands defeated. The AO ha s al so stated that when they vi si ted the premi ses duri ng the course of survey, they di d not find i t. The Ld. AR expl ai ned thi s and sai d that the survey was conducted i n 2013 and i t was then that the premi ses were vi si ted by the Department. However, at present we are referri ng to FY 2008-09 . Furthermore, thi s DG set was sol d i n AY 2010-11 and rel evant documents for thi s were al ready fil ed during the course of assessment proceedi ngs for AY 2010-11 and hence these documents were al ready i n record of the AO. Furtherm ore, thi s i ssue has been adjudi cated i n a number of ca ses where by i t has been hel d that depreci ati on i s all owabl e even on account of passi ve use/ready to use assets. The juri sdi cti onal Hi gh Court i n the case of CIT vs. Nahar Exports Ltd. 163 Taxman 518 (P&H) rei terated that even where the machi nery i s kept ready 64 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
for use, depreci ati on i s admi ssi bl e under Secti on 32 of the Act. Hon'bl e Hi gh Court i n the case of CIT v. Pe psu Roa d T ransport Corpn: 253 ITR 303 hel d that depreci ati on cl aimed by a transport undertaki ng on spare en gi nes kept i n store for use i n the case of need, coul d not be di sall owed on the ground that the same were not used by asse ssee. Hence, foll owi ng these two di rect juri sdi cti onal Hi gh Court deci si ons, depreci ati on shoul d be all owed to the Assessee."
92. The Departmental Representati ve reli ed on the orde rs of the Lower authori ti es.
93. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The AO disallowed depreciation of Rs42 lacs in respect of 2 generator sets on the ground that those generator sets were not used during the relevant previous year. The assessee explained before the AO that the 2 generator sets were kept standby for use in the business of generation of electricity so that the continuity of the business is not affected. We find that no material has been brought on record to controvert the plausible explanation of the assessee. It is an established position of law that the asset which have been kept ready for use in business but could not be used for any reason the same is treated as used for the purpose of business. Support for the above view is drawn from the decision in the case of CIT vs. Naha r Exports Ltd. 163 Taxman 518 (P&H). We therefore delete the disallowance of depreciation of Rs.42 lacs and allow this ground of appeal of the assessee.
94. Ground No. 8 of the appeal of the assessee reads as under:
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"8. That the assessing officer/ DR P erred on facts and in law in disallowing a sum of Rs.54,03,885 incurre d by the appellant towards empl oyee welfare expenses under section 40A(9) of the Act.
8.1 That the assessing officer/ DRP e rred on fact s and in law in holding that the aforesaid expense s were in no way linke d t o busin ess expediency an d were disallowa ble under section 40A(9) of the Act.
8.2 That the assessing officer/ DRP failed to appreci ate that the provisions of section 40A(9) of the Act were n ot applicable to the aforesai d expenditure incurred by the appellant."
95. The Assessi ng Offi cer observed that whil e computi ng the i ncome in the ori gi nal return, the assessee has itself di sall owed Rs.54,03,885/- u/s 40 A(9) of the Income-tax Act , 1961. However i n the revi sed return the expenses have been cl ai med as deducti on. The asse ssee was requi red to show cause addi ti on of Rs. 54,03,885/- shoul d not be made. The assessee fil ed written repl y as under:-
"As re garding your query relating to sum paid by the assessee as employer of Rs.5403885/- towards employee welfare scheme, it is submit that during the previous year the employer has contributed Rs.54,03,885/- towa rds welfare of employee i.e. towards providing financial assist ance to the needy employee/his family in case of death/permanent total disablement of an employee; Medica l treatment to self & dependent s; retirement on attaining the age of superannuation etc. Further amount of Rs. 15,50,361/- actually utilized on welfare activities is attached a s per Annexure-3 alongwith the detail of expenses. Therefore, there would not be any disallowance un der section 40A(9) of the Income-tax Act, 1961.
87. After consi deri ng the submi ssi ons of the assessee the AO observed that i t i s found to be not 66 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
tenabl e. The Audi tor i n hi s Tax Audi t Report i n Form No.3CD i n col umn 17(g) has made the fol l owi ng observati ons:-
"Any sum paid by the assessee as an employer not allowable under section 40A( 9) - Annexure-j (reproduced bel ow) :-
Employer's contribution made t o employees Welfare Scheme:-
Raigarh 4072542.71
Delhi 260708.50
Raipur 245732.73
Tensa 115574.70
Tamnar 66613.00
B argil 32546.00
Angul 317297.73
Total: 5403885.37
96. The Assessi ng Offi cer there after observed that Assesse e di d not submi t any further detail s or supporti ng evi dence. Whatever i s on record shows that the payments have nothi ng to do wi th the business exi genci es, like the assessee has debi ted Rs.75,000/- wi th the foll owi ng narrati on:-
S.No. Na me of the e mpl oyee De signat ion Cla im f or Am ount disease 1 S.S.M La kra Officer Self 75,000/- Artificial inse mina tio n
97. The Assessi ng Offi cer observed that there cannot be any connecti on between the 'Arti fi ci al i nsemi nati on' and the busi ness of the assessee compan y. The statutory Audi tor ha s al ready appli ed hi s mi nd and segregated expenses of Rs.54,03,885/- (out of total of such expenses of Rs. 1,55,50,361/-) as-di sall owabl e u/s 40A(9) of the Income-tax Act, 1961 as these are not basi call y rel ated to busi ness exi genci es. In fact, the assessee has furni shed mi nimal detail s before the Assessi ng Offi cer. It i s understood that suffi ci ent 67 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
detail s were avail abl e before the statutory audi tor and statutory Audi tor has reached l ogical concl usi on after appl ying hi s mi nd as well as provi si ons of law. Therefore, the Assessi ng Offi cer i ncli ned to go wi th the opini on of the statutory Audi tor and a sum of Rs. 54,03 ,885/- wa s proposed to be di sall owed u/s 40A(9) of the Income-tax Act, 1961.
98. The Assessi ng Offi cer al so observe d that i n respect of the objecti ons of the assessee the D RP rejected the objecti ons of the assessee by observi ng as under:-
"The Assessing Officer disallowed the expenditure of Rs.54,03,885/- placing reliance on 40A(9) of the Act. The contribution by the assessee to the employee's welfare schemes, wa s indeed, not in consonance with the prescripti ons of the above provisi on."
99. Therefore, the sum of Rs.54,03,8 85/- was di sall owed and added ba ck to the i ncome of the assessee by the AO.
100. We fi nd that the AR rei terated the submi ssi ons made before the l ower authori ti es. We find that Rs54,03,885/- was di sall owed by the AO by i nvoki ng provi si ons of secti on 40A(9) of the Act. The opi ni on of the AO i s al so supported by the opi ni on of the Tax Audi tor of the assessee . The l d. AR of the assesse has brought no materi al before us to show that the amount i n questi on was not hi t by the provi si ons of secti on 40A(9) of the Act. In the ci rcumstances we do not fi nd any good rea son to i nterfere wi th the orde r of the AO. Thus the ground no. 8 of the appeal of the assessee i s di smi ssed.
101. Ground No. 9 of the appeal of the assessee reads as under:
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"9. That the assessing officer/ DR P erred on facts and in law in disallowing lease rent amounting to Rs.1,83,93,480 holding the sa me to be capital expenditure.
9.1 That the assessing officer/ DRP e rred on fact s and in law in holding that the aforesaid payment was towards cost of the capital asset and therefore, the same could not he allowed as reve nue expenditure.
9.2 That the assessing officer/ DRP failed to appreci ate that similar lease rent s had been allowed as deduction in earlier assessment years and therefore, there was no reason to deviate from the accepted position during t he year under consideration.
9.3 Without prejudice, the a ssessing officer/ DR P erred on fa cts and in law in not a llowing depreciation on the total cost/ value of the assets taken on lease, consistent with the finding that the capital asset s were acquired by the appellant on finance lease."
102. The Assessi ng Offi cer observed t hat duri ng the previ ous year 2004-05, the company has ta ken an ai rcraft on l ease from GE capi tal servi ces Indi a, the lease payment excl udi ng fi nance charges have not been debi ted to Profi t & Loss Account as pe r the provi si ons of AS-19 i ssued by the ICAI. The fi nance charges debi ted to the Profi t & Loss Account have been i ni ti ally added to the income for the purpose of computati on of tax and deducti on of l ease rental including the fi nanci al charges i n the cumul ati ve sum of Rs. 1,16 ,91034/- has been cl ai med as an expenses as per the provi si ons of the Act.
103. The assessee has fil ed a copy of the Ai rcraft l ease Agreement duri ng the assessment proceedi ngs, wherei n GE Capi tal Seri es Indi a i s the Lessor and owner of the Ai rcraft and the assessee company. JSPL i s th e l essee. In the cl ause 21 of 69 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
the Agreement termed as End of Lease purchase opti on, the l essee has been gi ven ri ght to purchase the Ai rcraft but subject to condi ti ons specifi ed. As per Annexure-E of the Rental Agreement, fi nal rental schedul e has been drawn f or 84 months gi vi ng the breakup of mon thly rental spli t i nto i nterest and pri nci pal .
104. Thi s i s a fi nance l ease and assessee has got the ai rcraf t financed by GE Capital Servi ces Indi a pri vate Li mi ted. Therefore, am ount of i nterests al one can be sai d to be incurred for busi ness and all owance under the Income-tax i s restri cted to the same. Am ount of pri ncipal cannot be al l owed as deducti on as i t rel ates to the pri nci pal amount whi ch i s a capi tal expense.
105. In the submi ssi ons fil ed duri ng the FBT proceedi ngs, i t has been submi tted by the assessee that total l ease payments of Rs. 2,16,91,034/- has been made whi ch constitutes Rs. 32,97,554/- towards fi nance charges an d Rs. 1,83,93,480/ - towards ca pi tal cost. In vi ew of the same, Rs. 1,83,93 ,480/- was propose d to be treated as capi tal expenditure and added back to the income of the assessee.
106. The D.R.P. rejected the objecti ons rai sed by the assessee observi ng that the matter i s pendi ng adjudi cati on wi th hi gher appel l ate authori ti es and therefore, the objecti on is not accepted.
107. Therefore, the Assessi ng Offi cer treated, the sum of Rs.1,83,93,480/- as capi tal expendi ture and added ba ck to the i ncome of the assessee.
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108. The Assessi ng Offi cer further observed that si nce, the department is treati ng thi s transacti on as purchase , the depreci ati on on the same coul d be all owed provi ded assessee accepts the departmental stand and makes a cl ai m of depreci ati on. The same woul d be all owed u/s 154, promptl y.
109. On the other hand, the l d. Depa rtmental Representative reli ed on the orders of the l ower authori ti es.
110. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. In the i nstant case the assessee has pai d Rs.2,16,91,034/- i n respect of Lease cum Purchase agreement of one Ai rcraft. The AO observed from the agreement that i n cl ause 21 thereof the assessee was granted ri ght to purchase the sai d Ai rcraft at the end of the l ease peri od subject to certai n condi ti ons menti oned therei n. From the sai d agreement the AO observed that the l ease i n questi on was a Fi nanci al Lease and the payment made by the assessee was compri sed of two el ements i .e. a part tow ards the Capi tal cost of the asset and the other pa rt for i nterest. The AO worked out the i nterest component at RS.32 ,97,5 54/- and all owed the same . The bal ance payment was consi dered as Capi tal Expendi ture . The AO furthe r stated that depreci ati on i n respect of the Cost of Capi tal Asset shall be all owed to the a ssessee if the assessee m oves 154 Peti ti on. We fi nd that the Ld. AR coul d not bri ng any materi al before us to controvert the fi ndi ng of the AO. In the ci rcumstances we fi nd no good reason t o i nterfere wi th the order of the AO. How ever, we fi nd force i n the contenti on of the Ld. AR that depreci ati on ought to have been all owed to the assessee i n respe ct of cost of the Asset. We 71 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
therefore di rect the AO to all ow depreci ati on as per l aw i n respect of cost of Asset. Thus t hi s ground of appeal of the assessee i s treated as partl y all owed.
111. Ground No. 10 of the appeal of the assessee reads a s under:
"10. That the assessing officer/ DRP erred on facts of the case and in law in disallowing Rs.6,34 ,582 out of a ircraft expenses incurre d by the appellant during the relevant assessment year without providing any cogent reasons for doing so.
10.1 That the assessing officer/ DRP erred on facts of the case and in law in ma king the afore said disallowance without appreciatin g that the aircraft expenses were incurred by the appellant wholly and exclusively for business purposes."
112. The Assessi ng Offi cer observed th at duri ng the year, the assessee has cl aimed avi ati on expenses of Rs.4,08 ,02,454/- i n the Profi t and l oss a ccount. The assessee furni shed detai l s of the avi ati on expenses. From a pe rusal of detai l s, i t i s noti ced that the assessee has cl aimed the foll owi ng journey expendi ture:-
Sr. No. Particulars Amount Date
1 Hiring of Helicopter -Badaun-Delhi 223976/- 26.08.2008
2 Paid to Sanjeev Toward Flight Exp 4,10,606/- 17 to 19.03.2009
Bills
113. The assessee was requi red to prove t he genui neness of journey and compl ete detail s of clients with whom the meeti ng was hel d and the transa cti ons entered i nto. The assesse e furni shed wri tten repl y, whi ch i s as under:-
"Hiring charges of Helicopter from Dehradun-Delhi- Rs. 240833/-Please find attached the bill a s 72 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Annexure-5. Please note that these expenses have been incurred towards hire charges for visit to customers site in U.P. Various payments to Sanjeev Total ing Rs.3,90,906/- in various dates between 16 March, to 19th Ma rch , 2009 - Please n ote that Mr. San jeev is a cashie r and these payments have been made to Mr. Sanjee v for reimbursement of va rious pet ty cash expenses incurred by the pilots during flights like statutory payment of duties, hotel bills, fooding bills, charges paid to Ai r India, Medical Kit etc. Please find attached the sample copies of bills as Annexure-ii."
114. The Assessi ng Offi cer observed that the repl y of the assessee has been consi dered ca refull y and i s found to be not tenabl e. The assessee coul d not furni sh compl ete detail s of cli ents and transacti ons entered i nto. In an absence of such detail s expenses cannot be sai d to be incurred for busi ness purpose. As regard the payment made to Sanjeev expenses have been i ncurred towards the end of the year and all the payments are bel ow Rs. 20,000/- wi thin a peri od of fi ve days. The bill s of the expenses have been rai sed i n the month of March. It i s beyond comprehensi on how such expense woul d occur onl y i n the Month of March, 2009. Hence, the sum of Rs. 6,34,582/- was propose d to be di sall owed as the asse ssee ha s been unabl e to prove the busi ness utili ty of the abov e expendi ture.
115. The D.R.P. rejected the objecti ons of the assessee by observi ng that even during present proceedi ng, the assessee di d not provi de necessary detail s to prove that the expenses were wi th reference to genui ne need of the business.
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116. Therefore, the Assessi ng Officer di sall owed Rs.6,34,582/- and added to the i ncome of the assessee.
117. The Authori zed Representati ve of the assessee submi tted that on a perusal of the detail s of expendi ture i ncurred on ai r journeys, i t will be kindly appre ci ated that all the journeys were rel ated to the busi ness of th e assessee an d the Asse ssi ng Offi cer di sall owed the expendi ture incurred on an ad-hoc basi s, by randoml y pi cki ng some of the journeys made and hol di ng that they were not made for busi ness purposes wi thout bri ngi ng on record even an i ota of evi dence to substanti ate that the journeys were for non-bu si ness purposes. The Ld. AR submi tted that ad-hoc di sall owance i s not permi tted in l aw. The Ld. AR al so submi tted that the Assessi ng Offi cer has n ot brought on record any evi dence to rebut the Assessee 's contenti on that the tri ps were conducted whol ly and excl usivel y for the purpose of the busi ness.
118. It was further submi tted that the above i ssue, in pri nci pl e, stands deci ded i n favour of the Assessee by the deci si on of the Del hi Bench 'I' of the Tri bunal i n assessee's own case beari ng ITA Nos. 3257/ Del/05 and 3485/Del /05 for the assessment year 2001-02, wherei n the Tri bunal has hel d that expenses for tri ps to meet customers and/or prospe cti ve customers were di rected to be a ll owed by the Tri bunal . The assessee has fil ed i n the Paper book the detail s at Page No. 596-602 of Paper book Vol . 2. The Assessi ng Offi cer made the addi ti on wi th respect to onl y two expenses and the proof for the same has been dul y submi tted by the Assessee, by furni shing requi si te i nvoi ce for Delhi - Dehradun - Del hi travel 74 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
and copy of sampl e invoi ces i n respect of rei mbursements made by Sanjeev whi ch i s pl aced at Page No. 603-606 and 607-610 of Paper book Vol . 2. When the evi dences, invoi ces and vouchers have been dul y submi tted, there was no reason to di sall ow thi s expendi ture speciall y consi deri ng the fact that the Assessee has been abl e to support thi s cl aim wi th enough materi al on record and the Assessi ng Offi cer had onl y made an ad hoc di sall owance. Thus, the Assessi ng Offi cer be di rected to del ete thi s addi ti on.
119. The l d. Departmental Representati ve reli ed on the orders of the l ower authori ti es.
120. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. The AO di sall owed Rs.6 ,34,582/- out of expenses cl ai med by the assessee under the head Ai rcraft expenses. The sai d di sall owance is compri sed of two el ements namely Rs.2,23,606/- for hel i copter hi re charges for vi si ts on Del hi to Dehradun and Rs. 4 ,10,606/ - for rei mbursement of mi scell aneous expenses incurred by pi l ot li ke payment of statutory duti es and hotel charges etc. The AO di sall owed heli copter charges of Rs2,23,6 06/- on the ground that busi ness purpose of the same was not establ i shed. The AO di sall owed Rs.4,10 ,606/- by observing that the enti re expenses were i ncurred duri ng the month of march 2009 i .e. i n the l ast part of the rel evant year and al l expenses we re i ncurred i n cash. The L d. AR of the assessee submi tted that vi si t to Dehradun was made by the di rect ors of the assessee company to meet the customers and prospecti ve customers si tuated in and around Dehradun. The T ri bunal i n the case of the assessee 75 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
company i tsel f i n the AY 2001-02 has hel d that travel ling expenses incurred to meet customers and prospecti ve customers i s al l owabl e as busi ness deducti on. In respect of expense of Rs.4,10,606/- i t was expl ai ned that the expendi ture was i ncurred i n connecti on wi th the above journey and al l are supported by bi ll s and vouchers. T hese are i nci dental expenses li ke ai rport duty and taxes and h otel charges for stay of pi l ot etc. The Ld. DR coul d not controvert the submi ssi on of the assessee. Thus, we fi nd that the expenses we re i ncurred by the company out of commerci al expedi ency. We therefore del ete the di sall owance of Rs.6,34,582/-. Thus, thi s ground of appeal i s all owed.
121. Ground No. 11 of the appeal of the assessee reads a s under:
"11. That the assessing officer/ DRP erred on fact s and in law in disallowin g Rs:61,65,830/- (Rs.38.48,859 + Rs.23,16,971) out of foreign travel expenses incurred by the appellant, holding the sam e to be non-business expenditure.
11.1 That the assessing officer/ DRP e rred on fact s and in law in not appre ciating that expenditure of Rs.38,48,859 incurre d for expl oring ra w-material from overseas mines was incurred wholly and exclusively for purpose of business.
11.2 That the assessing officer/ DRP e rred on fact s and in law in holding that explorat ion of raw materials at Bolivia was new business or expansion of the existing business and hence expenditure incurred was not for the existing business.
11.3 That the assessing officer/ DRP e rred on fact s and in law in disall owing ot her foreign t ravel expenses of Rs.21,16,971 h olding that the said expenses were not incurred for business purposes.76 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
11.4 That the DRP erred in allegi ng that the appellant failed to file necessary details to establish that the aforesaid expenses were incurred for business purposes."
122. The Assessi ng Offi cer observed t hat from the perusal of the Profi t & Loss Account fil ed al ongwi th the return, i t was noti ced that the assessee cl aimed forei gn travelli ng expenses of Rs. 8,87 ,25,778/-. F rom the ex ami nati on of the sai d detail s, i t was noti ced that the assessee has debi ted of Rs.38,48 ,859/- on account of Pl ane hi re on 22.07.2008. On bei ng requi red to expl ai n as to how the expenses were i nci dental to business, the assessee's counsel repli ed that that pl ane hi re charges of Rs. 38,48,859/- were i ncurred by the assessee for expl ori ng raw materi al from Mi nes at overseas l ocati on at Boli vi a.
123. Further besi des the above, the assessee has cl ai med other expenses on account of journey performed by the Di rectors and other empl oyees as detail ed bel ow:-
17.07.2008 A ir t ic ke t b i ll o f S h . Ra n a & F a m ily Rs . 9 7 0 9 5 8 /- 19.11.2008 F o r e ig n e xp e ns e , S in ga p o re Rs . 3 5 3 4 6 4 /- 23.07.2008 S h . Na ve e n Jin d a l Rs . 9 9 2 5 4 9 /-
124. These are onl y some of the i nstances. The assessee coul d not furni sh the copies of the Ti ckets and bill i ssued by the travelli ng agent on the ground that the same are not traceabl e. Accordi ngl y, the assessee was speci fi call y asked vi de letter dated 22.02.2012 to furni sh the foll owi ng detail s Name of the persons and thei r famil y members, durati on, purposes of journey and whether ITDS deducted on the pl ane hi re expenses, names of the cl i ent to whom met, copi es of bill s, ti ckets, boardi ng and lodgi ng expenses, busi ness deal s/transacti ons.
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125. The assessee furni shed wri tten repl y as under:
"Please note that plane hire charges of Rs. 38,48,859/- were incurred by the assessee for exploring raw materi al from Mi nes at overse as location at Bolivia.
Kindly note that the foreign travelling expenses were incurred on travel of Mr. Nav een Jindal, EVC & MD, in most of the cases are with, senior management team of the company , for the business purpose of the assessee like expl oring sou rces for continuous supply of raw materi al like coal, i ron ore; exploration of new cust omers at vari ous locations; meeting with va rious supplier; attending international business /economic summits etc."
126. The Assessi ng Offi cer observed that the assessee has not furni shed any supporti ng evi dence as to what was the outcome of the vi si t; the detail s of cli ents whom contacted and the transacti ons conducted on accoun t of the above journey. The expenses on account of travel of famil y members can not at all be sai d to be i ncurred for busi ness purpose. The asse ssee ha s admi ttedl y failed to prove the genuineness of hi s cl aim; as the assessee i s not havi ng any bill or supporti ng vouchers i n respect of the expenses cl ai med. The expenses i ncurred for expl orati on of raw materi al s at Bol ivi a cannot be sai d to be i ncurred for exi sti ng busi ness and are at best rel ated to new busi ness set up or expansi on of busi ness.
127. The Assessi ng Offi cer further observed that even on meri ts, the cl aim of the assessee i s not mai ntai nabl e as the same has not been shown to have any nexus wi th the business carri ed out by the assessee and i t has not been proved that i t was expended whol l y and excl usively for the purpose of such busi ness and, therefore, the sam e are still not all owabl e u/s 78 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
37(1) of the Act. The Hon'bl e Apex Court has hel d i n the case of Vi jay Laxmi sugar Mill s Ltd. Vs CIT (1991) 191 ITR 641 that where there is no nexus between the busi ness and expendi ture, the expendi ture i s not all owabl e. In thi s regard, he drew support from the judge ment of the Hon'bl e Supreme Court, del ivered i n the case of Al umi num Corporati on of In di a Ltd. Vs CIT 86 ITR 11, whe rei n, it was hel d that for al l owing any expendi ture there must be commerci al expedi ency. In vi ew of the above di scussi on, i t i s clear that - fi rstl y these are personal expenses, whi ch remain to be veri fi abl e in the absence of any bill s and vouchers and secon dl y the tour expenses are not i n any way i nci dental to busi ness of the assessee and hence these are not at all all owabl e.
128. Keepi ng i n vi ew, the above facts a nd ci rcumstances of the case, a sum of Rs. 61,65,830/- w as proposed to be di sall owed out of forei gn traveli ng expenses bei ng not i ncurred wholl y and excl usivel y for busi ness purposes.
129. The D.R.P. rejected the objecti ons obse rvi ng that the forei gn travel expenses for Rs.6 1,65,830/- compri sed of Ai r ti ckets of Sri Rana & Famil y, Ai rfare for expl ori ng raw materi al , vi si ts to Si ngapore an d traveli ng expenses of Sri Naveen Ji ndal , MD. However, the detai l s of the correspondences, pri or to undert aki ng the mi ssi ons abroad, i tinerari es, detail s of meetings, negoti ati ons, and outcomes of all such meeti ngs were not made avail abl e.
130. Hence, the AO di sall owed sum of Rs.61,65,830/- and added ba ck to the i ncome of the assessee.
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131. The Authori zed Representati ve of the assessee submi tted that the Assessee had i ncurred travelli ng expenses of Rs.8,87,25,778/- whi ch were cl aimed as busi ness expendi ture under secti on 37(1) of the Act, out of whi ch a sum of Rs. 61,65,830/- has been di sall owed by the AO, on the ground of genui neness as wel l as l ack of commerci al expedi ency, despi te the fact that the Asse ssee submi tted detail s/ informati on/ documents/ evi dences as requi red by the AO in support of travelli ng expenses, whi ch i ncluded rel evant accounts, i nternal travel approval forms, and sampl e i nvoi ces of travel undertaken by the offi ci al s of the Assessee for busi ness purposes.
132. The detail s of the di sall owed amount are:
S. No. Expenditure Amount (in Rs.)
1. Hiring cost of plane hired in Bolivia dated 38,48,859/-
22.07.2008
2. Air Ticket bill of Sh. Rana & Family dated 9,70,958/-
17.07.2008
3. Foreign expenses, Singapore dated 3,53,464/-
19.11.2008
4. Sh. Naveen Jindal dated 23.07.2008 9,92,549/-
Total: 61,65,830/-
133. In support of the genui neness of the above cl aim, the Ld. AR submi tted that the Assessee submi tted before the AO tha t the pl ane hi ri ng charges were i ncurred for the expl orati on of raw materi al s from mi nes at overseas l ocati on at Bol i vi a. Further, the Assessee submi tted that forei gn travelli ng expenses of Sh. Ji ndal were wi th the seni or management team of the company, for the busi ness purposes of the company, li ke expl orati on sources for conti nuous suppl y of raw mate ri al s li ke coal , i ron ore, expl orati on of new customers at vari ous 80 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
l ocati ons, meeti ng wi th various suppl i ers, attendi ng i nternati onal busi ness / economi c summi ts, etc.
134. Further, the Ld. Authori zed Representative al so submi tted copi es of i nvoi ces, i nternal authori zati on forms, statements of expenses etc. are pl aced at Pg. 611-670 of Vol ume-2of Paper Book i n order to prove the genuineness of the cl aims. The assessee al so submi tted a short note whi ch i s pl aced at page nos. 662-664 of Vol ume-2of the Paper Book on the sai d cl aim. However, accordi ng to the Ld. AR, the AO has not referre d to the submi tted documents, and i nstead, has proceede d t o term the cl ai m as non-genui ne. Further, the expl anati on provi ded for busi ness expedi ency, were not consi dered by the AO whi l e passi ng the assessment order.
135. The assessee al so submi tted that the enti re travelling expenses were i ncurred for vari ous busi ness purposes, i ncl udi ng meeting wi th customers, vendors, procurement of goods an d se rvi ces, market resea rch concl aves, semi nars, etc. and on account of commerci al expedi ency. There is no di scussi on in the assessment order i n rel ati on to reasoni ng of di sall owance of travel li ng expenses cl aimed by the Assessee , nor i s there any di scussi on on the vol umi nous documents submi tted by the Assessee.
136. It was submi tted that, in the foll owing deci si on the Courts/Tri bunal s have hel d that expenses incurred i n rel ati on to setti ng up of a new uni t by an exi sting busi ness i s all owabl e deducti on i f the new uni t consti tutes the same busi ness.
Ø Setabganj Suga r Mills Ltd. Vs. CIT: 41 ITR 27 2 (SC) 81 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Ø CIT Vs. Prithvi Insurance Co. Ltd. : 63 ITR 632 (SC) Ø L.M.Chhabda & Son s Vs. CIT: 65 ITR 639 (SC) Ø Produce Exchange Corporation Ltd. Vs. C IT: 77 ITR 739 (SC) Ø B .R.Ltd. Vs. V.P.Gupta C IT Bombay: 113 ITR 647 (SC) Ø Veecumsees Vs. CIT 220 ITR 185 (SC) Ø DCIT, Ba roda Vs. Guja rat Alkialie r & Chemicals Pvt. Ltd.: 299 ITR 85 (SC) Ø DCIT Vs. C ore health Care Ltd. : 298 ITR 194 (SC) Ø CIT Vs. Modi Industries Lt d. ( No. 3): 200 IT R 341(Delhi) Ø CIT Vs. T riveni Engineering and Industrie s Limited. : 181Taxman 5 (Delhi) Ø CIT Vs. Relaxo Footwea rs Ltd. : 293 ITR 231 (Delhi) Ø CIT Vs. Usha Iron & Ferro Metal C orp. Ltd. : 296 ITR 140 (Delhi) Ø CIT Vs. Rane (Madras) Ltd. : 293 ITR 459 (Delhi) Ø Indo rama Synthetics (I) Lt d.Vs. CIT: 228 CTR 278 (Delhi) Ø Jay Engineering works ltd. Vs. CIT: 311 ITR 405 (Delhi) Ø CIT Vs. Monnet Indust ries Ltd. : 221 CTR 266 (Delhi) Ø CIT Vs. havells India Limited: 352 ITR 376 (Delhi)
137. It i s thus settl ed posi ti on that expendi ture i ncurred for the purpose of expansi on/extensi on of the exi sting busi ness i s all owabl e revenue expendi ture.
138. In the present case, as stated a bove, expenses were, i t i s rei terated, i ncurred merel y to expl ore possi bility of raw materi al from mi nes l ocated at Bol i vi a, whi ch were requi red fo r the exi sti ng busi ness of the assessee. Thus, the expendi ture so i ncurred i s, i n i ts enti rety, all owabl e as busi ness deducti on.
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139. Even assumi ng that such expendi ture was incurred for expansi on of the exi sti ng busi ness, si nce the sai d acti vi ty was undertaken under the control and supervi si on of the exi sti ng management and out of the existi ng avail abl e funds of the assessee, the expenses i ncurre d were sti ll all owabl e as deducti on. Reli ance was pl aced on foll owi ng deci si ons:
Ø Indorama Synthetics Ltd. : 333 ITR 18 (Delhi) Ø CIT Vs. Vardhman Spinning & General Mills : 176 Taxman 157 (P&H)
140. It was therefore submi tted that the expendi ture i ncurred was all owabl e as busi ness deduction.
141. It was submi tted that in any case, the Assessi ng Offi cer cannot put hi msel f in the armchair of a busi nessman to deci de the justi fi cati on of i ncurri ng or not i ncurri ng any parti cul ar expendi ture. So l ong as the expendi ture i ncurred is for busi ness purpose s, the same is all owabl e as busi ness deducti on i n view of the foll owi ng Hi gh Court deci si ons:
Ø CIT v. Dalmia Cement (P.) Ltd: 254 ITR 377 (Del.) Ø CIT V. Bharti Televentures Ltd: 331 ITR 502 (Del.) Ø D & H Seche ron Electrodes Pvt. Ltd. vs. CIT: 14 9 ITR 400 (MP).
142. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. We find that the AO has di sall owed Rs 61,65,830/- out of Forei gn travel expenses mai nl y on the ground that the purpose of the rel ated travel was not furni shed and the refore the commerci al expedi ency of the sai d expendi ture was not establi shed. On the other hand the assessee has fil ed copi es of 83 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
i nvoi ces and detail s of expenses at page n os. 611 t o 670 of vol ume 2 of the paper book and contended that these documents were fil ed before the AO to show busi ness connecti on of the expendi ture i n questi on. However, the AO has not consi dered the same. The Ld. DR coul d not controvert the above submi ssi on of the assessee. In the ci rcumstances i n our consi dered opi ni on i t shall be i n the interest of the justi ce to rest ore thi s i ssue back to the fi l e of the AO for adjudi cati on afresh after taki ng into consi derati on the sai d documents by passi ng a speaki ng order. Needl ess to menti on that the AO shall all ow reasonabl e opportuni ty of heari ng to the assessee before adjudi cati ng the i ssue afresh. Therefore, the ground no. 11 of the appeal i s all owed for sta ti sti cal purposes
143. Ground No. 12 of the appeal of the assessee reads a s under:
"12. That the assessing officer/ DRP erred on fact s and in law in disallowing an amount of Rs.77,33,850 out of business promotion expen ses incurred by the appellant during the relevant assessment year without providing any cogent reasons for doing so."
144. The Assessi ng Offi cer observed th at duri ng the year, the assessee has debi ted huge busi ness promoti on Expenses i n the Profi t & Loss Account. The assessee furni shed the detail s of prom oti on expenses during the assessment proceedi ngs. From examinati on, the detail s of these expenses, i t i s noti ced that the assessee has made the foll owing expenses:-
Sr. No. Particulars Amount Date
1 Gift for Press Reporter 87400/- 23.04.2008
2 Diwali Gift Purchase for VIP 551800/- 24.10.2008
3 Diwali Gift Purchase for VIP 1050600/- 24.10.2008
4 Diwali Gift Purchase for VIP 329606/- 24.10.2008
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Purchase from Anoop Chand
5 Jewelers 999025/- 12.11.2008
6 Mishri Lai la Chand 446732/- 12.11.2008
7 Anoop Chand Trilok Chand 954188/- 30.11.2008
Expenses on Diwali for Pardeep
8 office 234599/- 31.12.2008
9 Gift for office guest 365620/- 31.03.2009
Shooting equipment vidya Devi 100000/-
10 28.08.2008
Jindal School, Hisar
11 Platinum support Ent Odissa 500000/- 15.10.2008
12 Beli Ram Tara chand 1204026/ 03.11.2008
-
13 Faquir Chand & Sons 748800/- 03.11.2008
Civil work of shooting Range at 166373/- 21.02.2009 14 Sonipat
145. The assessee was requi red to furni sh speci fi c details of the benefi ci ari es and to prove th e genui neness and busi ness exi genci es of the above expenditure. In response to thi s, the assessee furni shed wri tten reply whi ch as under:-
"Diwali gifts of Rs. 5,51,800/- & Rs. 10,50,600/- - Please note that these expenses have been incurred on Diwali Gifts which a re gi ven to ban kers, Customers etc. on the occasion of Diwali. Please find attached the details of the payments made as Annexure-2."
Civil work- of Shooting Range - Rs, 166373/- - Please find attached the bill as Anneuxre-3. These expenses have been incurred for providing sport facilities to employees and various other sta ke holder in the company etc."
Expenses of Authentic creation - Rs. 29,92,100/-, Beli Ram Tara Chand- Rs. 12,04,026/-, Gifts for guests, Diwali gifts for VIP's, Fire work done, Diwali gifts from anop Chand Jewellers, Diwali gifts from Mishri Lai Chand, Diwali gifts (sweets & Watch) - Please note that these are all Diwali gifts which are given to Banke rs, customers, su ppliers, employees and various othe r sta ke hol ders in the company etc. on the occasion of Diwali."
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Gifts for Press reporte rs - Vari ous press conferences need to be held and these are customary gifts given to all news agencies which attend press conference."
146. The Assessi ng Offi cer observed that repl y of the a ssesse e has been consi dered carefull y and i s not tenabl e. The assessee coul d not furni sh the necessary detail s li ke compl ete narrati on of these expenses, detai l s of benefi ci ari es. The assessee coul d not furni sh the name and addresses of the person to whom the gi fts were di stri buted. The assessee's fa ctory premi ses are l ocated at Rai pur and Rai garh. The Regi stered Offi ce of the assessee i s si tuated at Hi sar and Delhi . The shooti ng range i s bei ng set up at Sonepat . So-the busi ness utili ty of setti ng up shooti ng range at Sonepat i s not establ i shed. The assessee coul d not prove the genui neness of these expenses. The assessee al so coul d not prove that the same are i ncurre d wholl y and excl usi vely for busi ness purpose s. Hence, a sum of Rs. 77,33,850/- was proposed to be di sall owed out of Prom oti on Expenses i n the draft order.
147. The D.R.P. rejected the objecti ons of the assessee by observi ng as under:-
" Even during present proceeding, the assessee did not provide necessa ry details to prove that the expenses were with reference to genuine need of the business."
148. Therefore, a di sall owance of Rs.77,33,850/- was made out of busi ness promoti on expenses, and added t o the taxabl e i ncome of the assessee.
149. The Authori zed Representati ve argued that duri ng the year under consi derati on, the Assessee had debi ted, i nter ali a, busi ness expendi ture i n the profi t and l oss account on account 86 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
of busi ness promoti on expenses. In the Assessment Order, the AO has proceede d to doubt the genuineness and busi ness expedi ency of the sai d expenditures and thus an amount of Rs. 77,33,850/- has been di sall owed.
150. That in response to the AO's queri es, the Assessee submi tted detail s of vari ous busi ness promoti on expenses undertaken by i t, and al so submi tted sampl e i nvoi ces, i n order to prove the genuineness thereof. However, the AO ha s not referred to even a si ngl e sampl e i nvoi ce that has been produced by the Asse ssee. Regardi ng the busi ness expedi ency of the expenses, the Ld. AR submi tted that the busi ness prom oti on expenses can be broadl y di vi ded i nto the foll owing heads: Di wali gi fts / expenses, Civil work for shooti ng range , gi fts for conferences / events. Before the AO, the Assessee made detail ed submi ssi ons on all these heads, and the commerci al expedi ency of the same.
151. Regardi ng Di wali gifts, i t was submi tted that these gi fts were gi ven to bankers, customers, VIP etc., on the occasi on of Di wali and i ncluded costs tow ards, sweets, fi re crackers, gi fts etc., detai l s of whi ch were al so submi tted before the AO. Regardi ng Ci vil work for sh ooti ng range, i t was submi tted before the AO that the these expenses were i ncurred to provi di ng sports facili ties for empl oyees and vari ous other stake hol ders i n the Assessee company, i nvoi ce for whi ch was al so submi tted before the AO. Rega rdi ng the gi fts for conferences / events, i t was subm i tted before the AO that the Assessee Company used to conduct vari ous press conferences, wherei n customary gi fts were di stri buted to the attendees, costs of whi ch were cl aimed as busi ness promoti on expenses.
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152. On the other hand, the l d. Depa rtmental Representative reli ed on the orders of the l ower authori ti es.
153. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. The AO on veri fi cati on of sal e promoti on expenses found that expendi ture to the tune of Rs.77,33,850/- was not for the purposes of the busi ness. Therefore he di sall owed the same. We find that Rs.21,66,605/- was incurred for maki ng gi ft to bankers customers ,etc. on the occasi on of festi val of di wali . Such expendi ture were incurred t o bui l d rel ati onshi p wi th busi ness associ ate for promoti on of busi ness. Si mil arly customary gi fts to press reporte rs attendi ng the busi ness press conference of the assessee was i ncurred out of commerci al expedi ency. Keepi ng i n vi ew the vol ume of busi ness of the assessee di wali gi ft of Rs.21,66,6 05/- and gi ft of Rs.87,400/- to the press reporte rs can be h el d to have incurred out of commerci al expedi ency. In respect of expense of Rs.2,66,373/- i ncurred for ci vil constructi on of shooti ng range and shooti ng equi pment it i s observed that they were i ncurred for a shooti ng range at Soni pat where nei ther the factory or offi ce of the assessee i s si tuated. The assessee coul d not e stabl i sh the busi ness connecti on of the said expendi ture. Si mil arl y in respect of bal ance expendi ture of Rs.55,00,877/- i n absence of detail s of benefi ci ary the commerci al expedi ency of the same coul d not be establ i shed. We therefore del ete the di sall owance of Rs.24,32,973/- out of total di sall owance of Rs.77,33,850/- and confi rm the di sall owance of bal ance amount of Rs.55,00,877/-. Thus, thi s ground no.12 of the appeal of the assessee i s partl y all owed.
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154. Ground No. 13 of the appeal of the assessee reads a s under:
"13. That the assessing officer erred on facts and in law in making an adjustment of Rs.21,06,39,195 t o the arm's length price of the 'internationa l transactions' of interest received from loan advanced to associated enterprise, on the basis of the orde r passed under se ction 92CA(3) of the Income-tax Act, 1961 ("the Act"), by the TPO.
13.1 That the assessing officer/ TPO erred on facts and in law in computing the a rms length rate of interest charged on the international transacti on of loan extended to\ the AE 's, viz., J indal Steel & Powe r (Mauritius) Ltd. and Jindal Minerals & Metals Africa Ltd., at the rate of 16% p.a. as against 8% p.a. charged by the appellant ba sed on conje ctures an d surmises and by incorre ct dete rmination of a rm's length price under the Transfer Pri cing regulations.
13.2 That the assessing officer / TPO erred on facts and in law in appropri ately determining the arm's length rate of interest in respect of international transaction of loan extended to t he AE applying CUP method by comparing the afore said Prime Lending Rate (PLR) of SBI for the previous year 2008-09 at 12.75%with a mark-up of 325 base point as the benchmark for determining the arm's length rate of interest in respect of international transaction extended in foreign currency.
13.3 That the assessing officer / TPO erred on facts and in law in not appreciating that 'conside ring the compa rable uncontrolle d benchmark, pla ced on record by the appellant, the international transaction of loan extended to the AE was e stablished to be at arm's length interest rate.
13.4 That the assessing officer/ TPO erred on facts and in law in n ot appreciating that the interest charged by the appellant at 8% p.a. is higher than the interest charged by banks on external commercial borrowings from the a ppellant in a range of I.63%-89 ITA No. 893/Del/2014
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3.72% and the transaction of re ceipt of interest is to be considere d being at arm's lengt h rate.
13.5 That the assessing officer/TPO e rred on facts and in law in disregarding the fact that the loan was advanced by the appellant to its associated enterprise in foreign denominated currency and accordingly, loa n available in the international market with interest rate computed conside ring Libor rates shall he applied for benchmarking.
13.6 That the assessing officer/TPO e rred on facts and in law in considering the average Prime Lending Rate of SBI a s the arms lengt h rate of interest without appre ciating that such ra te is applicable on loans availed in India in domestic currency.
13.7 That the assessing officer/TPO e rred on facts and in law in not appreciating th at the credit of the appellant is `AA+' an d since the a ssociated enterpri se is a wholly, owned subsidia ry of appellant, the same credit rating shall apply t o its a ssociated enterprise also.
13.8 That the assessing officer / TPO erred on facts and in law in not appreciating that the interest rate of 8%, charge d by the appellant in respect of foreign currency loan to the AE, was higher than the un-rated bond issued in Singapore Dollar by Tat a Communication (Netherlands) BV a t 4.25%.
13.9 That the assessing officer/TPO e rred on facts and in law in not appreciating th at even conside ring the yield on bonds issued by unrelated Indian companies in Indian currency having an yield of 2.917%-6.877%, no adjustment is warranted on this account.
13.10 That the assessing officer/ TPO erred on facts and in law in not appreciating tha t the loan advanced by the appellant is for expanding its business in ne w horizons and having regard to the economi c substance of the transaction , the said transaction shall be consi dered in the nature of quasi equity an d accordingly shall not he benchmarked a pplying rates 90 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
applicable on commercial loan loans provided by banks.
13.11 Without prejudice, the assessing officer/TPO erred on facts and in law in further adding a ma rku p of 325 bps in the PLR rate of SBI, on account of adjustment for secu rity and single customer risk, without appreciating that the appellant itself is the holding company of its associa ted enterprise and accordingly posses the charge of all assets of its associate d enterprise .
13.12 That the DRP erred on facts and in law in summarily upholding the Transfer Pricing a djustment made by the TPO in the order passed under section 92eA(3) of the Act in respect of international transaction of loan a dvanced to the associated enterprise of Rs.21 ,06,39,195 without recording reasoned finding."
155. The Assessi ng Offi cer obse rved that duri ng the precedi ng years, JSPL has granted l oan amounti ng to Rs.4,14,07,06,500 to Ji ndal Steel & Power (Mauri ti us)Ltd. and Rs.46,71 ,31,785 t o Ji ndal Mineral s & Metal s Afri ca Limi ted. JSPL ha s granted these l oans for business purposes and i t i s chargi ng i nterest @8% annually. Accordi ngl y, i n the rel evant fi nanci al year, JSPL recei ved i nterest amounti ng to Rs.18,16,45,581/- and Rs. 2,89,94,354/- on l oan granted to Ji ndal Steel & Powe r (Mauri ti us) Li mited and Jindal Mi neral Metal Afri ca Li mi ted respecti vel y.
156. Regardi ng the reference ma de u/s 92CA(1), Transfer Pri ci ng Offi cer, has passed orde r u/s 92CA(3) dated 29.01.2013 wherei n an upward a djustment of Rs.23,22,39,255/- i s di rected to be made.
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157. The TPO cal cul ated arm's l ength pri ce of the i nterest @ 16% per annum as under:
Name of the Loan amt. Rate of Arm's Amount of Arm's Length Shortfall AE interest Length rate interest amt. of being charged of interest charged interest adjustment u/s 92CA Jindal Steel & 4140706500 8% 16% 181645581 363291162 181645581 Power (Mauritius) Ltd.
Jindal Minerals 8% 16% 28994334 57988668 28994334 & Metals Africa 462131785 Ltd.
158. Hence, the Arm 's Length/val ue of i nterest recei vable on l oans outstandi ng in the name of AE's determi ned at Rs.42,12,79,830/- agai nst Rs.21,06,39,195/- recei ved by the assessee.
159. The DRP has hel d that consi deri ng the facts of the ca se, the TPO has hel d that the i nterest rate of 16% p.a. is consi dered as re asona bl e in thi s case. The T PO ha s a ppl i ed the CUP method to dete rmi ne the arm's l ength pri ce of transacti on of provi si on of l oan by the assessee to i ts AE. The average PLR of the SBI duri ng the financi al year 2008-09 was 12.75%. Appl yi ng a markup of 325 basi s poi nts, the TPO has adopte d the reasonabl e rate of i nterest at 16% agai nst 17.24% menti oned i n the show cause. The arm's l ength pri ce/val ue of i nterest recei vabl e on l oans outstandi ng in the name of the AE's has been determi ned at Rs.42,12,79,830/- agai nst Rs.21,06,39,195/- recei ved by the assessee. Accordi ngly, the TPO has determi ned the TP adjustment of Rs.21,06,39,195/- on account of i nterest from l oan advanced to associ ated enterpri se.
92 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
160. The DRP therefore hel d that the TPO i s ri ght i n maki ng the above adjustment. The TPO has gi ven el aborate an d suffi ci ent reasons to make thi s addi ti on. The use of CUP as the most appropri ate method i n the facts and ci rcumstances of the case i s al so justi fied.
161. Hence, the Assessi ng Offi cer made a ddi ti on of Rs.23,22,39,255/-to the i ncome of the assessee.
162. Before us, the Authori zed Repre se ntative of the assessee submi tted the Appell ant had granted l oan amounti ng to USD 8,12,70,000 to Ji ndal Steel & Power (Mauri ti us) Li mi ted and USD 90,70,300 to Jindal Mi neral s & Metal s Afri ca Li mi ted, who are the Associ ated Enterpri ses (AEs) of the Appell ant. Interest i s charged on the l oan at the rat e of 8% annuall y. Duri ng the rel evant fi nanci al year, JSL recei ved interest amounti ng to Rs.18,16,45,581/- on l oan grant ed to Ji ndal Steel & Powe r (Mauri ti us) Li mi ted and Rs. 2,89,94,334/- on l oan granted t o Ji ndal Mi neral s & Metal s Afri ca Li mi ted.
163. In the TP Study, the Appell ant has benchmarked the sai d transacti ons appl yi ng CUP method and concl uded that the aforesai d transacti on i s at arm's l ength as the Appell ant has avail ed external commerci al borrowi ngs from fi nanci al i nsti tuti ons at a rate of i nterest rangi ng from 1.63% to 3.72% p.a. but extended l oan to Ji ndal Steel & Power (Mauri ti us) Li mited and Ji ndal Mi neral s & Metal s Afri ca Li mi ted at hi gher rate, i .e. 8% p.a . In ca se of JSPL, compa rabl e transacti on was avail abl e where JSPL has avail ed external commerci al borrowi ng from fi nanci al i nsti tuti ons, at a rate of i nterest rangi ng from 1.63% to 3.72% P.A. Consi deri ng that the 93 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
i nternati onal transacti on of recei pt of i nterest by JSPL at 8% was hi gher than compa red t o comparabl e uncontrol l ed pri ces for si mil ar uncontrol l ed transacti ons, the 'i nternati onal transacti on' of i nterest recei ved was consi dered t o be at a rm's l ength appl ying Comparabl e Uncontrol l ed Pri ce method.
164. The TPO di srega rded the benchmarki ng anal ysi s undertaken by the Appell ant for determi ni ng the arms l ength pri ce of i nterest on l oan a ppl ying CUP method and i nstead computed the rate of i nterest of 11.33% p.a. on the basi s of average Pri me Lendi ng Rate of i nterest offered by State Bank of Indi a. The TPO further, added a markup of 395 bps on account of adjustment for securi ty and transacti on cost , on the PLR of SBI. The TPO accordi ngl y appl i ed the rate of 16% and computed an adjustment of Rs. 21,06,39,195/-.
165. The Authori zed Representati ve of the assessee submi tted that Rul e 10B(1)(a) of the Income-tax Rul es provi des that Comparabl e Uncontroll ed Pri ce Method compa res the pri ce charged for prope rty or se rvi ces transferred i n a control l ed transacti on to the pri ce charged for property or se rvi ces transferre d in a comparabl e uncontrol l ed transacti on in compa rabl e ci rcumstances.
166. Generall y, i nternal comparabl es avail abl e i n case of an Appel l ant are to be preferred for the purpose of benchmarki ng of i nternati onal transacti ons even i n the case where any of the prescri bed method i s appli ed, instead of rel yi ng on external compa rabl es, as provi ded in Paragraph 3.26 of the OECD Gui delines. The revi sed OECD Transfer Pri cing Gui deli nes i ssued on 22nd Jul y, 2010, too, provi de for use of i nternal 94 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
compa rabl e data for benchmarki ng anal ysi s in preference ove r the external benchmark. The Benches of the Tri bunal consi stentl y hel d that the Rul e i tsel f provi des that whil e undertaki ng a benchmarki ng anal ysi s, internal comparabl e uncontrol l ed transacti ons i s to be preferred ove r the external compa rabl e uncontroll ed transactions.
167. Reli ance in thi s regard was pl aced on the recent deci si on of Chennai Bench of Tri bunal i n the case of VVF LTD Vs DCIT [ITA No. 673/Mum /06], wherei n, i t was hel d as under:
"We have noted that as was also note d by the Transfer Pricing Officer himself at page 3 of his orde r the Appellant has borrowed foreign currency loans i n US Dollars and for the purposes of investing in subsidiaries abroa d, from ICICI Bank at the rate of LIBOR + 3% The Appellant has also filed a letter from Bank of India stating that "duri ng March 2002, we had been charging spreads of 1 50 bps to 300 bps over LIBOR in respect of foreign currency loans base d on financial position and cre dit rating of the borrowe r". As for the LIBOR rate, as pe r the information provided by Appella nt, it ranged from 1,85000 (2 weeks) to 3.00250 (1 year). On the given facts, in ou r consi dered view, it w ould be a ppropriate to acce pt internal CUP, i.e. the rate at which the Appellant has resorted to foreign exchange borrowings from the ICICI, as arms length price under CUP method. The fact, as brought on record by the authorities below that this loan from ICICI ban k was not used for the purpose s of remittance to subsidiaries a s interest free loans has no bearing for the purposes of computing ALP of interest free loan. The financial position and cre dit rating of the subsidiaries will be broadly the same as the holdin g company, and, therefore , the precise rate at which the ICICI Bank has advanced t he foreign currency loans to the Appellant company can be adopted at arms length price of interest free loans advanced by the Appellant company to its foreign subsidiaries."95 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
168. In the present case , the Appel l ant has appropri ately justi fi ed the sai d internati onal transacti on of recei pt of i nterest on the aforesai d l oan of USD 8,12,70,000 advanced to Ji ndal Steel &Power (Mauri tius) Limi ted and USD 90,70,300 t o Ji ndal Mi neral s & Metal s Afri ca Limi ted by way of i nterest pai d on ECBs taken from vari ous banks at the rate of i nterest rangi ng from 1.63% to 3.72% p.a.
169. The TPO, howeve r, di srega rde d such i nternal CUP provi ded by the Appel l ant by way of ECB l oans. It i s submi tted that the TPO di d not a ppre ci ate that the Appel l ant has al so taken ECB l oan on 15.12.2005, 19.06.2006 and 26.03.2007 for a cumul ati ve sum of USD 170 milli on and JPY 12184 milli on at the rate of i nterest rangi ng from 1.63% to 3.72% p.a.. No reason , whatsoever has been gi ven by the TPO for di sregardi ng the i nternal CUP applied by the Appell ant.
170. The Hon'bl e Del hi Hi gh Court in case of Sony Er icsson Mobile Communications India (P.) Ltd. vs. CIT (374 ITR 118 (Del)) has hel d that an internal comparabl e i s more dependabl e and rel i abl e and i s to be used, when data f or the same i s avail abl e.
171. It was argued that the Appel l ant has, though justi fi ed the sai d i nternati onal transacti on of recei pt of i nterest on the aforesai d l oan of USD 8,12 ,70,0 00 to Ji ndal Steel & Powe r (Mauri ti us) Li mi ted and USD 90,70,300 to Ji ndal Mi neral s & Metal s Afri ca Ltd by way of i nterest pai d on ECBs taken from vari ous banks, i nternati onall y the external commerci al borrowi ngs are avai l abl e at much lower rate whi ch are charge d wi th reference to the London Inter Banki ng Offered Rate 96 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
(LIBOR).In the i nstant case l oan is gi ven i n USD and there i s no di spute on the same.
172. It was submi tted that, in the case of export cre di t i n forei gn currency, the RBI ha s al so gi ven di recti ons wherei n it is speci fi call y menti oned that the LIBOR rate was to be appl i ed. Si nce, the above transact i on of l endi ng l oan in forei gn currency to a forei gn enti ty is al so an internati onal transacti on, as per the RBI gui deli nes, onl y the LIBOR rates can be appl ied.
173. Hon'bl e Del hi Hi gh Court i n the case of CIT vs. Cott on Naturals I. P. Ltd. Reported in 276 CTR 445 (Del) has hel d that PLR rate i s not a ppl i cabl e and LIBOR rate i s to be a ppl i ed when the l oan i s in forei gn currency.
174. The Authori zed Representati ve of the assessee al so rel i ed on the deci si on of Chennai Bench of the Tri bunal i n the case of Si va Industri es and Hol di ngs Ltd. vs. ACIT [IT A No. 2148/Mds/2148], wherei n, the Tri bunal hel d that, once th e transacti on between the Appe ll ant and the associ ated enterpri se i s i n forei gn currency and the transacti on i s an i nternati onal transacti on, then the transacti on woul d have to be l ooked upon by appl yi ng the commerci al pri nci pl es i n regard to i nternati onal transacti on.
175. It was submi tted that since the Appel l ant has charged a hi gher rate of 8% than the appl i cabl e LIBOR rate, no adjustment was requi red to be m ade on account of the a rms l ength pri ce of recei pt of i nterest.
97 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
176. We have heard the ri val submi ssi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. In the i nstant case, the assessee granted l oan of USD 8,12,70,000 to Ji ndal Steel & Power (Mauri tius) Ltd. And of USD 90,70,300 to Ji ndal Mineral s & Metal s Afri ca Ltd. Who are the Associ ated Enterpri ses of th e assessee du ri ng the year under consi derati on. On these loans, the assessee cha rge d i nterest @ 8% per annum and recei ved Rs.18,16,45,581/- from M/s Ji ndal Steel & Powe r (Mauri tius) Ltd. And Rs.2,89,94 ,334/- from Ji ndal Mi neral s & Metal s Afri ca Ltd. The assesse e benchmarked thi s transacti on of l oan by appl yi ng CUP methods. Accordi ng to the assessee, as per Rul e 10B(1)(a) of Income Tax Rul es, CUP method compares the pri ce charged for property or se rvi ces transferre d i n a control l ed transacti on to the pri ce charged for property or se rvi ces transferred i n a compa rabl e uncontroll ed transaction. As per the revi sed OECD transfer pri ci ng gui deli nes i ssued on 22.07.2010 i nternal compa rabl e data for benchmarki ng analysi s shoul d be preferre d over external benchmark. The i ssue was deci ded by the Hon'bl e Del hi Hi gh Court i n the case of Sony Eri csson Mobi l e Communi cati ons Indi a (P.) Ltd. Vs CIT reported i n 374 ITR 118 (Del .) that i nternal comparabl e was more de pendabl e and rel i abl e and shoul d be used where data for the same i s avail abl e. Further, the H on'bl e Hi gh Court i n the case of CIT Vs Cotton Natural s I. P. Ld. Re ported i n 276 CTR 445 (Del .) hel d that PLR rate was not appl i cabl e and LIBOR rate was to be appl i ed when the l oan was i n forei gn currency . Hence, the TPO/AO was not justi fi ed in applying PLR rate of State Bank of Indi a i n determini ng the ALP of forei gn currency l oan given by the assessee t o i ts two Associ ated Enterpri ses. Further, the 98 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
Chennai Bench of Tri bunal i n the case of Si va Industri es and Hol di ngs Ltd. Vs ACIT i n ITA No. 2148/MDS./2018 hel d that once the transacti on between the appel l ant and the Associ ated Enterpri ses was i n forei gn currency and was an internati onal transacti on than it shoul d be l ooked upon by appl yi ng commerci al pri nci pl e i n regard to internati onal transacti on. It was argued that si nce the assessee has charge d hi gher i nterest rate of 8% than the LIBOR rate, therefore, the transacti on of the assessee was at Arm's Length.
177. It was al so submi tted that the assessee duri ng the same peri od has taken l oan from Financi al Instituti on through External Commerci al Borrowi ng a t i nterest rate of 1.63% to 3.72% per annum and therefore, the interest rate of 8% charged by the assessee from i ts two Associ ated Enterpri ses was at Arm's Length and hence, no addi ti on on that account was warranted.
178. We fi nd that the rate whi ch shoul d be adopted by the TPO/AO for benchma rki ng the l oan transacti ons wi th the assessee's Associ ated Enterpri ses shoul d be the LIBOR rate and not the PLR rate as adopted in the instant case i n vi ew of the deci si on of Hon'bl e Del hi High Court i n CIT Vs C otton Natural s I. P. Ltd. (supra). The assessee has al so submi tted that i t has made external commerci al borrowi ngs at i nterest rate rangi ng from 1.63% to 3.72% per annum. The assessee has not provi ded us the detail s of external commerci al borrowi ngs and that the l oans adv anced by the assessee t o i ts Associ ated Enterpri ses was from t hese borrowi ngs. Further, the detail s of LIBOR rate prevaili ng at the rel evant ti me has al so not been provi ded by the assessee. Therefore , we are unabl e 99 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
to adjudi cate the i ssue completely. Hence, we have no other al ternati ve but to remand the matter back to the file of the AO to adjudi cate the i ssue afresh after exami nati on in li ne wi th the di scussi ons made herei nabove. Thus, the ground of appeal i s all owed for stati sti cal purposes.
179. Ground No. 14 of the appeal of the assessee reads a s under:
Transfer Pricing Adjustment on guarantee issued on behalf of the A E "14. That the assessing officer / TPO erred on facts and in law in making an addition of Rs.2,16,00,060 allegedly on the ground that no commission has been charged by the a ppellant for providing corporat e guarantee to the lenders on beh alf of its Associated Enterprises.
14.1 That the assessing officer /. TPO erred on facts and in law in imputing the commi ssion at the rate of 2.71% p.a. plus a mark-up of 20 0 bps, allegedly on the basis of data obtained from various banks u/s 133(6) of the Act.
14.2 That the assessing officer/TPO e rred on facts and in law in disre garding the fact that guarantee wa s issued by the assessee pursuant t o an obligation ca st upon a shareholde r, being the holding company, an d not a service rendered to the AE.
14.3 That the assessing officer/TPO e rred on facts and in law in not appreciati ng that corporate guarantee issued by the a ssessee was purely on the commercial conside ration in anticipation of significant benefit in the form of profit income in the later years.
14.4 Without prejudice, the assessing officer/TPO erred on facts and in law in not appreciating that the appellant has himself paid commission at the rate of 0.125% p.a. on bank gua rantee issued by Yes Bank, and accordingly without preju dice, the adjustment 100 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
propose d on this account shall be restricted to 0.125% p.a. applying CUP method.
14.5 Without prejudice, the assessing officer/TPO erred on facts an d in law in charging a markup of 20 0 bps on the average rate of com mission charge d by various banks on account of adjustment for lending business risk and single customer1 risk without providing cogent reasons and on the basis of conjecture and surmise s.
14.6 That the DRP erred on fa cts and in law in summarily upholding the Transfer Pricing a djustment made by the TPO in the order passed under section 92CA(3) of the Act in respect of corporate guarantee issued to the lenders on behalf of the associated enterprise of Rs. 2,16 ,00,060 without recording reasoned finding."
180. The Assessi ng Offi cer observe d that the assessee company has gi ven a Bank Guara ntee worth Rs.18 Milli on $ on behal f of the AE Ji ndal Steel . The above transacti on i s an i ndependent cl ass of i nternati onal transacti on and the same i s i ncl uded in defi niti on of i nternati onal transacti on as per amendment made u/s 92B of the Act. Hence, i t was proposed to charge arm 's l ength pri ce of provi di ng the servi ces by the assessee i n the shape of Bank Guarantee by consi deri ng the rates preval ent i n independent transacti on. Hence, i n order t o determi ne arm's l ength pri ce in rel ati on to i nternati onal transacti ons the case was referre d to T ransfer Pri ci ng Offi cer after obtai ni ng the pri or approval of CIT, Hi sar.
181. The TPO determi ned the rate to be charged by the assessee from i ts Associ ated Enterpri ses for corporate Guarantee as under:
Sr. D e t a ils o f Bank V a lu e of A ve r a ge Ra t e t o be C o r p o r a te No . Gu a r a n t e e Bank C o m m iss io n c h a r ge d b y Gu a r a n t e e Gu a r a n t e e rate a s s es se e C h a r ge s 101 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
(Rs . I n C r . ) c h a r ge d b y (% ) (Rs . )
B a n ks (% )
1 USD M illio n 45.86 2 . 7 1 ( r e fe r 4.71 2,16,00,06
d a t ed A n n e x. 1 ) 0
15.12.2007
182. Arm's Length Pri ce of provi di ng the servi ces i n the form of bank guarantee i s determi ned as under:
A LP of Corporat e gu aran t ee Ch arges Rs.2 ,1 6 ,0 0 ,0 60 /-
Corporat e G u aran t ee ch arges Ni l
recei v ed
S h ort f all bein g adju st m en t u /s 92 CA Rs.2 ,1 6 ,0 0 ,0 60 /-
183. The Assessi ng Offi cer obse rved th at the facts i nvolved for thi s i ssue are that the Appell ant duri ng the year has gi ven performance gua rantee to ICIC I bank for an amount of USD 9 Milli on on behal f of Ji ndal Steel , Boli vi a, pursuant to facility agreement dated 15 t h December 2 007.
184. The Appell ant for the purpose of extendi ng its busi ness operati ons across the gl obe has entered i nto agreement wi th the Government of Boli vi a for setti ng up steel , pell et, sponge i ron & power pl ant i n South America. Pursuant to tender i ssued by the Government of Boli vi a for 'subscription cont ract mining production of steel mutun'. The Appell ant during the year has gi ven corporate guarantee to IC IC I bank for an amount of USD 9 milli on on behalf of Jindal Steel , Boli vi a, i n li eu of i ts commi tment for pe rformi ng the tender taken. It i s the case of the Assessee that it has extended thi s support i n capaci ty of a sharehol der's acti vi ty as the subsi di ari es are strategi c i nvestment. Further, corporate guarantee has been provi ded to guard i ts i nvestment in the group compani es for vari ous busi ness and econ omi c reasons. It i s to safeguard i ts own i nterest. The Appel l ant was awarded the contract by the Government of Boli vi a and hence it i s the Appell ant's own 102 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
obl i gati on whi ch is onl y bei ng executed vi a Ji ndal Steel , Bol ivi a.
185. The Appell ant di d not i ncur any costs/expenses on account of i ssue of such gua rantees and a ccordi ngl y, took the vi ew that i t i s not an internati onal transacti on in terms of Secti on 92B(1) of the Income Tax Act. The TPO i n hi s order, however, has rejecte d thi s hol di ng that the Appell ant and the AEs are separate l egal entity and accordi ngl y, the transacti on of i ssue of performance guarantee is requi red to be demonstrated to be at arm 's l ength pri ce. The T PO i mputed noti onal commi ssi on income at the rate of 2.71% p.a. pl us a mark-up of 200 basi s points on the basi s of data obtai ned from State Bank of Indi a u/s 133(6) of the Act, hol di ng that such transacti ons are i ndependent transacti ons and shal l be benchmarked appl ying CUP method.
186. Secti on 92(1) of the Act provi des for computati on of i ncome ari si ng from an 'i nternati onal transacti on' havi ng regard to the arm's l ength pri ce. Expl anati on to secti on 92(1) of the Act further cl ari fi es that all owance of any expense or i nterest ari sing from an 'i nternati onal transacti on' shall al so be determi ned having regard to the a rm's l ength pri ce.
187. Further, sub-secti on (2) of secti on 92 of the Act provi des for appli cati on of arm's l ength test in respect of 'mutual agreement' or 'arrangement'. The pre-condi ti on for i nvoki ng arm's l ength test as provi ded i n sub-secti on (2) of secti on 92 of the Act that the two or more associ ated enterpri ses must enter i nto a mutual agreement or arrangement f or all ocati on or apporti onment of, or any contri buti on to, any cost or expense s 103 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
i ncurred i n connecti on wi th benefit, servi ce provi ded by one or more of such enterpri ses admi ttedl y does not exi st i n the present case.
188. It i s an undi sputed fact that the aforesai d corporat e guarantees were i ssued by the Appell ant wi thout incurri ng any cost. In vi ew of the af oresai d, it woul d be a ppreci ated that si nce the corporate guarantee i ssued by the Appell ant to its associ ated enterpri se does not ha ve any i mpact on i ts profi ts, cost and i ncome, i t cannot be subjected to benchmarki ng under transfer pri cing provi si on of the Act as i t fall s withi n the purvi ew of the defi ni ti on of "internati onal transacti on" as menti oned i n Secti on 92B(1) of the Act.
189. In the foll owi ng cases too, it has been hel d that Corporate Guarantee i s outsi de the purvi ew of Transfer Pri ci ng:
1. S ir o C lin p h a r m I TA . No . Mumbai 1 - 5 6 o f t h e TP P vt . L t d . V s . 2 6 1 8 /M u m /2 0 1 4 I TA T C L C (r e le va n t DCIT pg. 11)
2. M a r ic o L t d . V s . I TA No . 8 7 1 3 & 8 8 5 8 / Mumbai 57 - 76 of the ACIT M u m /2 0 1 1 I TA T TP C L C (r e le va n t [2 0 1 6 ] 7 0 p g . 6 6 -7 0 ) t a xm a n n . c om 2 1 4 (M u m b a i - Tr ib . )
3. V id e o c o n I . T. A . No . 1 7 2 8 - Mumbai 77 - 136 of the I n d u s t r ie s L t d. 1 7 2 9 /M U M /2 0 1 4 I TA T TP C L C Vs. ACIT
4. B h a r t i A ir t e l I . T. A . No . : Ne w D e lh i 137 - 194 of the L im it e d V s . 5 8 1 6 /D e l/2 0 1 2 I TA T TP C L C (r e le va n t A d d l. C I T p g . 1 5 3 -1 6 2 )
5. Re d in g t o n I TA No . 6 1 9 /M d s /2 0 1 4 C h e n na i 195 - 266 of the (I n d ia ) L im it e d I TA T TP C L C V s . JC I T
6. F o u r S o ft L t d . I TA No . 1 9 0 3 /H yd /1 1 H yd e r ab ad 267 - 288 of the Vs. DCIT I TA T TP C L C
7. Re lia n c e I TA Mumbai 289 - 370 of the I n d u s t r ie s L t d. No . 8 8 5 /M u m /2 0 0 9 I TA T TP C L C V s . A dd l. C I T
8. M ic r o I n k L t d I TA 2 8 7 3 /A h d /1 0 A h m a da ba 371 - 430 of the Vs. ACIT d I TA T TP C L C (r e le va n t p g . 3 8 7 -4 1 9 ) 104 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
9. M a n u g r ap h I . T. A . Mumbai 431 - 486 of the I n d ia L t d . V s . No . 2 6 3 1 /M u m /2 0 1 5 I TA T TP C L C (r e le va n t DCIT pg. 444)
190. In vi ew of the aforesai d, it is submi tted that the transacti on of i ssue of corporate guarantee i s not re qui red to be benchmarked unde r secti on 92(1) of the Income Tax Act and hence, noti onal i ncome proposed to be i mputed i s liabl e to be dropped.
191. Further, Guarantee provi ded by the Appel l ant was part of the procedural compli ance for availing the banking faciliti es i .e. l oan by the subsi di ari es and was gi ven by Appell ant for i ts own commerci al expedi ency and for the overal l benefi t of the Appel l ant and the group. The corporate guarantee was provi ded by the Appel l ant as i t i s having sharehol di ng interest i n the subsi di ari es. Reli ance was pl aced on the foll owi ng case l aws:
Ø Marico Ltd. vs. ACIT [2016] 70 taxmann.com 214 (Mumbai - Tribunal) Ø Micro In k Ltd vs. ACIT (ITA 2873/Ahd/10) Ø Manugraph India Lt d. vs. DCIT (I.T.A. No.2631/Mum/2015) Ø Tega industries Ltd vs. DCIT
192. The reli ance was al so pl aced on the foll owi ng case l aws:
Ø M/s Knorr Bremse India Pvt. Ltd. [ ITA No. 182/2013] Ø CIT Vs. Cushman & Wakefield (India) Pvt. Ltd., [2014] 46 taxmann.com 317 (Delhi) Ø New Delhi Television Ltd. Vs ACIT (ITA No. 2851/Del/2013)
193. It was submi tted that i n respect of transa cti on where n o i ncome has been actuall y earned, no i ncome can, be imputed under any provi si ons of the Act, si nce the l aw does not 105 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
empower the Revenue authori ti es to bri ng to tax any noti onal / hypotheti cal income.
194. It i s further submi tted that under the scheme of the Act, Secti on 92 and the rel ated provi sions under Chapter - X of the Act contai n machinery provi si ons for com putati on of i ncome ari sing from i nternati onal transacti on. The Transfer Pri ci ng Provi si ons, bei ng in the nature of machi nery provi si ons are not i ntended to overri de the charging provi si ons of secti on 4 of the Act, and thus cannot be i nvoked to bri ng to tax any fi cti onal / assumed or hypotheti cal income where no i ncome otherwi se resul ts. To put i t differentl y, Secti on 92 of the Act i s not a chargi ng provi si on and cannot enlarge the scope and ambi t of the Act. For the a ppl i cati on of Secti on 92 of the Act, there has to be, fi rst, income embedded i n the i nternati onal transacti on.
195. Furthermore, i t must be a ppreci ated that transfer pri ci ng determi nati on is not pri maril y undertaken to re-wri te the character and nature of the transacti on (Ci rcul ar no. 14 of 2001). The object i s not to tax any noti onal i ncome. The l aw of transfer pri cing does not a rti fi ci ally broa den, expand or devi ate from the conce pt of " real i ncome". The ai m is not to unnecessaril y broaden the tax base and tax noti onal i ncome.
196. It was a rgued that i t was the pri mary obli gati on of the Appel l ant whi ch was only executed through i ts subsi di ari es. The objecti ve was al so to have synergy i n the i nternati onal operati ons, havi ng gl obal footpri nt, making presence fel t worl dwi de. It was dri ven by commerci al consi derati on wi th anti ci pati on of si gni fi cant benefi t in the form of profi t/ i ncome i n the l ater years.
106 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
197. It submi tted that provi si on of guarantee i s to be rega rde d as a sharehol der acti vi ty whi ch i s enjoyed by the AEs just bei ng a part of the group. Hence, the questi on of determi ning an arm's l ength pri ce does not a ri se. As a busi ness pra cti ce, guarantees to subsi di ari es formed especi ally for purposes of acqui si ti on or hol di ng investments are typi call y provi ded by the parent company as part of the sharehol der acti vi ty.
198. The Appell ant has provi ded guarantees to i ts AEs onl y to provi de assu rance and comfort t o the thi rd parti es, i t i s i n the ordi nary course of busi ness. Sharehol ders someti mes have to make commi tments to regul atory authori ti es wi th respect t o the heal th of an affili ate in order to get permi ssi on to acqui re an affili ate. In these cases, i t seems reasona bl e to concl ude that the guarantee confers no real benefit on the affili ate; rather, the sharehol der i s the true benefi ci ary because the guarantee enabl es i t to acqui re i ts i nvestment. It i s i nci dental to the parent's parti ci pati on as a sharehol der i n the subsi di ary. In the present case, pu rsuant to the obl i gati on of the Appel l ant, as the awardee of the tender, to perf orm in accordance wi th the tender, the guarantee was gi ven and hence the AE cannot be charged wi th commi ssi on for an obl i gati on of the Appell ant.
199. The Chennai bench of the Tri bunal i n the case of Mascon Gl obal Ltd. vs. ACIT i n ITA No. 22 05/Mds/2010 has a ppre ci ated the concept of sha rehol der servi ces and hel d that no benchmarki ng i s requi red where t ransacti on arose on a ccount of commerci al expedi ency.
107 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
200. The Hon'bl e Ahmadabad Bench of the Tri bunal i n the case of Mi cro Ink Ltd vs Addl . CIT (ITA No 2873/Ahd/10) whil e rel yi ng on the OCED gui delines hel d that acti vi ty whi ch i s sol el y undertaken because of the ownershi p interest i n the subsi di ary woul d not justi fy a charge from the subsi di ary.
201. Recently, the Kolkata Bench of Tri bunal i n the case of Tega Industri es Li mi ted vs. DCIT i n ITA No. 1912/Kol /2012, hel d that corporate guarantee furni shed by Appell ant to bank for extendi ng l oan to subsi di ary company in the Bahamas (SPV), for the purpose of acqui ri ng 2 South Afri can enti ti es i s a sharehol der functi on not warranti ng any commi ssi on on i ssue of such corporate gua rantee.
202. It was submi tted that, compa ri ng thi s guarantee wi th bank guarantee i s ill-found as when Commerci al banks i ssue bank guarantees these are treate d as the bl ood of commerce bei ng easily encashabl e in the event of defaul t. The consi derati on for whi ch banks issue financi al guarantees on behal f of i ts cli ents and the consi derati on for whi ch the corporates i ssue guarantees for thei r subsi di ari es, is di fferent because while banks seek to be compensated, even for the secured guarantees, for the fi nanci al ri sk of li qui dati ng the underl yi ng securi ti es and meeti ng the fi nanci al commi tments under the guarantee, the guarantees i ssued by the corporates for thei r subsi di ari es are rarel y, i f at all , backed by any underl yi ng security and the ri sk is enti rel y entrepreneuri al . The moti vati on or tri gger f or i ssuance of such guarantees i s not the kind for consi derati on for whi ch a banker gi ves the guarantee as m oti vati onal i ssue is 108 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
maximi zati on of gai ns for the recipi ent entity and thus the MNE group a s a whol e.
203. It was submi tted that Amendment to Secti on 92B i s prospecti ve i n nature and pl aced reli ance on the foll owing deci si ons:-
Ø CIT vs. Vatika T ownship (P.) Ltd. (367 ITR 466(SC)) Ø DIT v. New Skies Satellite BV [2016] 382 ITR 114/68 Ø Rusabh Diamonds vs. ACIT [2016 ] 48 ITR(T) 707- Mumbai Ø KGK Enterprises vs. ACIT ([2017] 88 taxmann.com 264 (Jaipur - Trib.)
204. Wi thout prejudi ce to ou r arguments, i t was submi tted that the sai d transacti on of corporate gua rantee cann ot be benchmarked separatel y and the corporate guarantee provi ded by the Appell ant i s di fferent from the bank guarantee provi ded by other banks, i t i s submi tted that the Appel l ant has pai d bank guarantee fees at a much lower rate of 0.10%-0.125% p.a. to Yes Bank Limi ted on i ssue of forei gn guarantee.
205. The TPO i n the i mpugned order has all egedl y added an ad-hoc markup of 200 bps on the average rate of commi ssi on of 2.71% p.a. cha rged by vari ous banks as per i nformati on sought under secti on 133(6).
206. Si nce, the TPO has consi dered the hi ghest rate of commi ssi on that woul d have been charge d by the bank from a company havi ng BBB or unrated rati ng, the credi t ri sk has al ready been factored in such rates. Further, si nce the TPO has consi dered the hi ghest rate of commi ssi on charged by the banks wi thout taki ng i nto accoun t the credi t worthi ness and 109 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
market reputati on of the Appell ant, a markup on account of ri sk adjustment i s unwarranted and li abl e to be reduced from the arms l ength rate of i nterest so determi ned.
207. Further, i t was submi tted that ra te of 0.27% shoul d be appl i ed. For thi s reli ance was placed on the deci si on of the Tri bunal i n case of Lanco Infratech Li mi ted [TS-328-ITAT- 2017(HYD)-TP]. It was submi tted that the Tri bunal foll owi ng Asi an Paints deci si on, adopted 0.27% as arm's l ength commi ssi on rate for the corporate guarantee provi ded.
208. The Tri bunal consi dering Asi an Pai nts Ltd [TS-868-HC- 2016(BOM)-TP] case , di rected AO/TPO to consi der onl y 0.27% as the guarantee commi ssi on. Further, rel i ance was al so pl aced on the case of Aster Pvt. Ltd. [ TS-446-ITAT-2017(HYD)-TP], wherei n the Tri bunal adopted 0.25% as ALP of commi ssi on i n respect of corporate gua rantee.
209. It was argue d that thi s transacti on was treated as an i nternati onal transacti on for the reason that the Finance Act, 2012, has i nserted an expl anation. It w as a rgued that the amendment will be appli cabl e prospecti vely from AY 2013-14 and will not be appli cable to the current Assessment Year. The same vi ew was supported by the deci si on of coordi nate bench of the Tri bunal i n the case of Dr. Reddy Laborat ori es and other benches of Tri bunal . The fi ndi ngs gi ven by the coordi nate bench in the case of Dr. Reddy Laborat ories Ltd. v. Addl . CIT [2017] 81 taxmann.com 398 (Hyd. - Tri b.) was as under:-
29. It was argued that the ITAT, Delhi Bench in the case of Bharati Airtel Ltd. (supra) has considere d an identical issue which was re-affirmed in the case 110 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
of Siro Clinpharma Pvt. Ltd., v. DCIT (orde r dated 31st March, 2016). The bench observed that transfer pricing is a legislati on seeking the tax-payers t o organi ze their affairs in a manner compliant with the norms set- out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party ca n be asked to do an impossibility. Analyzing further the Bench obse rved that though Explanation to Section 92B is stated t o be c1arificat ory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this re gard, relied upon the observation s of the Hon'ble Delhi High Court i n the case of Skies Satellite. We have also analyzed the case law relie d upon by the Ld. D.R. and al so th e provisions of the Act. In our consi dered opinion , th e view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd. (supra) is one of the possible view s on the matter and so long as there is no binding de cision of any other Higher Forum ta king a cont rary vi ew, the one which i s favourable to the a ssessee has to be a dopte d even though other Benches have take n a different view. We, therefore, hold that the Explanation to Secti on 92B cannot be applied ret rospe ctively and for the years under conside ration the assessee having not incurred any costs in providing corporate guarantee it would not constitute "Intern ational Transaction "
within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect."
210. Si mil ar fi ndi ng was gi ven i n the case of Rusa bh Di amonds vs. ACIT ([2016] 68 taxmann.com 141 (Mumbai - Tri b.)) wherei n it was hel d as foll ows:-
"38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative cont ends, this provision has alrea dy been ju dicially interpreted, and the matter rests the re unless it is re versed by a higher 111 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
judicial forum. However, if the 2012 amendment does increase the scope of internation al transaction under section 92B, as is our consi dere d view, there is n o way it could be implemented for the period prior t o this law coming on the statute i.e. 28th May 2012. The law is well settled. It does n ot expect anyone to perform an impossibility. Reiterating this settled lega l position, Hon 'ble Supreme Cou rt has, in the case of Krishnaswamy S. Pd. v. Union of India [2006] 281 ITR 305/151 Taxman 286, observe d as follows:
"The other relevant maxim is, lex non cogit ad impossibilia--the law does n ot compel a man to do what he cannot possibly perform. The law itself and its administration i s understood to disclaim a s it doe s in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that gene ral exception in t he considerati on of particular cases. [See : U.P.S.R .T.C. v. Imtia z Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab v. Kumar & Ors. 2006 (1) SCC 46, Mohammod Ga zi v. State of M.P. & Ors. 2000 (4) SCC 342 and Gursha ran Singh v. New Delhi Municipa l Committee 1996 (2) SCC 459]."
39. It is for this reason that the Explanation to Section 92B, though stated to be clarificatory and stated to be effective from 1st April 2002, has t o be necessarily treated as effective from at best the assessment year 2013-14. In addi tion to this reason , in the light of Hon'ble Delhi High Court's guidance in the case of New Skie s Satellit e BV (supra) also, the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being out side the scope of 'international transacti on', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesai d guidance of Hon'ble Delhi High Court, w ould not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards."
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211. A si mil ar vi ew has been taken by Jai pur ITAT i n the case of KGK Enterpri ses vs. ACIT ([2017] 88 taxmann.com 264 (Jai pur - Tri b.) wherein the Court hel d that-
"50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considere d the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increase s the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated t o be effective from 1st Apri l 2002. We have also gone through other Coordinat e Bench decisions in case of Gitanjali Exports Corporation (supra) an d Siro Clinpharm Private limited (supra) where similar view has been taken . The decision of Hon 'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back f or fresh conside rati on of the Tribunal"
and to this extent, the decisi on of the Coordinat e Bench in case of Ameriprise In dia Pvt Ltd which ha s equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same , following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR th at such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of internationa l transactions as envisage d u/s 92B of the Act . Accordingly, the subje ct transa ction if at all, it has t o be conside red a s an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as w e have held above, it has to be considere d as a n international transacti on from AY 2013-14 onwards and for the years under conside ra tion being AY 2007- 113 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
08, 2008-09 and 2009-10, the same will thus not qualify as an international transaction."
212. On the other hand, the l d. Depa rtmental Representative reli ed on the order of the authori ties bel ow.
213. After consi deri ng the ri val submissi ons and perused the orde rs of the l ower authori ti es and materi al s avail abl e on record. We fi nd that the Hyderabad Bench of the Tri bunal i n the case of Dr. Reddy Laborat orie s Ltd. v. Addl. CIT [2017] 81 taxmann.com 398 has hel d as under:-
"29. It was argued that the ITAT, Delhi Bench in the case of Bharati Airtel Ltd. (supra) has considere d an identical issue which was re-affirmed in the case of Siro Clinpharma Pvt. Ltd., v. DCIT (orde r dated 31st March, 2016). The bench observed that transfer pricing is a legislati on seeking the tax-payers t o organi ze their affairs in a manner compliant with the norms set- out. In short, it is an anti abuse legislation which tells you as to what is the acceptable behaviour but it does not trigger levy of tax in a retrospective manner because no party ca n be asked to do an impossibility. Analyzing further the Bench obse rved that though Explanation to Section 92B is stated t o be c1arificat ory, it has to be necessarily treated as effective from the A.Y. 2013- 2014 and in this re gard, relied upon the observation s of the Hon'ble Delhi High Court i n the case of Skies Satellite. We have also analyzed the case law relie d upon by the Ld. D.R. and al so th e provisions of the Act. In our consi dered opinion , th e view taken by the Delhi Bench of ITAT in the case of Bharati Airtel Ltd. (supra) is one of the possible view s on the matter and so long as there is no binding de cision of any other Higher Forum ta king a cont rary vi ew, the one which i s favourable to the a ssessee has to be a dopte d even though other Benches have take n a different view.
We, therefore, hold that the Explanation to Secti on 92B cannot be applied ret rospe ctively and for the years under conside ration the assessee having not 114 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
incurred any costs in providing corporate guarantee it would not constitute "Intern ational Transaction "
within the meaning of Section 92B of the Act and consequently, ALP adjustment is not warranted on this aspect."
214. Further, the Mumbai Bench of the Tri bunal i n the case of Rusabh Di amonds vs. ACIT ([2016] 68 taxmann.com 141 has hel d as foll ows:-
"38. Well, if the 2012 amendment does not add anything or expand the scope of international transaction defined under section 92B, assuming that it indeed does not- as learned Departmental Representative cont ends, this provision has alrea dy been ju dicially interpreted, and the matter rests the re unless it is re versed by a higher judicial forum. However, if the 2012 amendment does increase the scope of internation al transaction under section 92B, as is our consi dere d view, there is n o way it could be implemented for the period prior t o this law coming on the statute i.e. 28th May 2012. The law is well settled. It does n ot expect anyone to perform an impossibility. Reiterating this settled lega l position, Hon 'ble Supreme Cou rt has, in the case of Krishnaswamy S. Pd. v. Union of India [2006] 281 ITR 305/151 Taxman 286, observe d as follows:
"The other relevant maxim is, lex non cogit ad impossibilia--the law does n ot compel a man to do what he cannot possibly perform. The law itself and its administration i s understood to disclaim a s it doe s in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that gene ral exception in t he considerati on of particular cases. [See : U.P.S.R .T.C. v. Imtia z Hussain 2006 (1) SCC 380, Shaikh Salim Haji Abdul Khayumsab v. Kumar & Ors. 2006 (1) SCC 46, Mohammod Ga zi v. State of M.P. & Ors. 2000 (4) SCC 342 and Gursha ran Singh v. New Delhi Municipa l Committee 1996 (2) SCC 459]."
39. It is for this reason that the Explanation to Section 92B, though stated to be clarificatory and 115 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
stated to be effective from 1st April 2002, has t o be necessarily treated as effective from at best the assessment year 2013-14. In addi tion to this reason , in the light of Hon'ble Delhi High Court's guidance in the case of New Skie s Satellit e BV (supra) also, the amendment in the definition of international transaction under Section 92B, to the extent it pertains to the issuance of corporate guarantee being out side the scope of 'international transacti on', cannot be said to be retrospective in effect. The fact that it is stated to be retrospective, in the light of the aforesai d guidance of Hon'ble Delhi High Court, w ould not alter the situation, and it can only be treated as prospective in effect i.e. with effect from 1st April 2012 onwards."
215. A si mil ar vi ew has been taken by Jai pur ITAT i n the case of KGK Enterpri ses vs. ACIT ([2017] 88 taxmann.com 264 (Jai pur - Tri b.) wherein the Court hel d that-
"50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considere d the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increase s the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated t o be effective from 1st Apri l 2002. We have also gone through other Coordinat e Bench decisions in case of Gitanjali Exports Corporation (supra) an d Siro Clinpharm Private limited (supra) where similar view has been taken . The decision of Hon 'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back f or fresh conside rati on of the Tribunal"
and to this extent, the decisi on of the Coordinat e Bench in case of Ameriprise In dia Pvt Ltd which ha s equally relied on the said decision of the Bombay 116 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
High Court is distinguishable. In light of the same , following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR th at such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of internationa l transactions as envisage d u/s 92B of the Act . Accordingly, the subje ct transa ction if at all, it has t o be conside red a s an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as w e have held above, it has to be considere d as a n international transacti on from AY 2013-14 onwards and for the years under conside ra tion being AY 2007- 08, 2008-09 and 2009-10, the same will thus not qualify as an international transaction."
216. Still , further, the Jai pur Bench of the Tri bunal i n the case of KGK Enterpri ses vs. ACIT ([2017] 88 taxmann.com 264 has hel d as under:-
"50. We find that the Coordinate Bench in Rushabh Diamonds (supra) has examined at length the effect of the amendment brought in by the Finance Act 2012, considere d the decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV and has held that explanation to Section 92B which increase s the scope of international transaction, has to be necessarily treated as effective prospectively from the assessment year 2013-14 though stated to be clarifcatory and stated t o be effective from 1st Apri l 2002. We have also gone through other Coordinat e Bench decisions in case of Gitanjali Exports Corporation (supra) an d Siro Clinpharm Private limited (supra) where similar view has been taken . The decision of Hon 'ble Bombay High Court in case of Patni Computer Systems Ltd. has been rightly analysed by the Coordinate Bench in Rushabh Diamonds (supra) and it was held that "rather than answering this question on merits, and with the consent of both the parties, Their Lordships sent the matter back f or fresh conside rati on of the Tribunal"117 ITA No. 893/Del/2014
Jindal Steel & Power Ltd.
and to this extent, the decisi on of the Coordinat e Bench in case of Ameriprise In dia Pvt Ltd which ha s equally relied on the said decision of the Bombay High Court is distinguishable. In light of the same , following the decision of the Coordinate Bench in Rushabh Diamonds and in absence of any contrary higher authority on the subject, we agree with the contention raised by the ld. AR th at such amendment by way of an explanation to section 92B is an amendment to a substantive law as it has resulted in enhancement of the scope of internationa l transactions as envisage d u/s 92B of the Act . Accordingly, the subje ct transa ction if at all, it has t o be conside red a s an international transaction in light of decision in case of Kusum Healthcare (supra), which it is not, in the facts of the present case, as w e have held above, it has to be considere d as a n international transacti on from AY 2013-14 onwards and for the years under conside ra tion being AY 2007- 08, 2008-09 and 2009-10, the same will thus not qualify as an international transaction."
217. Respectfully, foll owi ng the deci si ons quoted above we hol d has hel d that the amendment made to Se cti on 92B by the Fi nance Act 2012 i s prospecti ve in ope rati on and accordi ngl y appl i cabl e i n the Assessment Year 2013-14 and subsequent years, and not appl i cabl e i n the i mpugned assessment year whi ch i s the Assessment Year 2009-10. We, therefore, hol d that the issuance of corporate gua rantee cannot be consi dered as an i nternati onal transaction for the year under consi derati on. Therefore, th e addi ti on made of Rs.2,16,00,060/- i s del eted. Thus, thi s ground of appeal of the assessee i s all owed.
218. Ground No. 15 of the appeal of the assessee reads a s under:
118 ITA No. 893/Del/2014Jindal Steel & Power Ltd.
"15. That the Assessing Officer/ DRP erred on facts and in law in n ot allowing MAT credit under Se ction 115JAA of the Act.
219. We have hea rd the ri val submissi on and pe rused th e orde rs of the l ower authori ti es and materi al s avail abl e on record. The Ld. AR of the assesse e cl ai med that MAT Credi t as eli gi bl e under secti on 115JAA of the Act has not been all owed to the assessee company. We therefore di rect the AO to veri fy the cl ai m of the assessee as per record and al l ow credi t under secti on 115JAA of the Act as all owabl e as per l aw.
220. Ground No. 16 of the appeal of the assessee reads a s under:
16. That the Assessing Officer/DRP erred on facts and in law in charging interest under section 234B of the Act."
221. No su bmi ssi ons were made by the AR of the asse ssee on thi s ground of a ppeal . We h ol d that chargi ng of i nterest i s consequenti al and mandatory. The AO i s di rected to provi de consequenti al reli ef as per l aw. Accordi ngl y, thi s ground of appeal of the assessee i s di sposed off.
222. The assessee has al so rai sed addi ti onal grounds of appeal :
"1. That on the fact s and circum stances of the case and in law, additional coal levy relatable to year under consideration amounting to Rs.176,94,54,250/- paid on account of extracti on of coal pursuant to the orde r(s) of the Hon'ble Supreme Court, be directed t o be allowed as business deducti on.
2. That on the facts and circum stances of the case and in law, a sum of Rs.25 ,00,00 ,000/- set aside on account of Debenture Re demption Reserve should be 119 ITA No. 893/Del/2014 Jindal Steel & Power Ltd.
excluded from book profits under section 115JB of the Income Tax Act, 1961."
223. The Authori zed Representati ve argued that i n the li ght of the l aw l ai d down by Hon'bl e Supreme Court i n the case of Nati onal Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, there cannot i ndeed be any objecti on to an Asse ssee rai si ng a new l egal pl ea at thi s stage. Thi s i s a pure l egal i ssue and all facts for a djudi cati on of thi s ground are al ready on record. Furthermore, the Assessee su bmi tted that thi s has been all owed by the Assessi ng Offi cer hi mself i n AY 2014-15 and AY 2015-16 and the i ssue on meri ts stands covered by vari ous Tri bunal and Hi gh Court judgments.
224. The Ld. Departmental Representat i ve stated that thi s i s a new ground bei ng rai sed i n Tri bunal for the fi rst ti me and hence shoul d not be adjudi cated as thi s cl ai m was not before the l ower authori ti es. He therefore prayed that the addi ti onal grounds may not be admi tted.
225. After heari ng the ri val submi ssi ons and perusi ng the materi al s on record, we fi nd that the i ssue rai sed i n the addi ti onal grounds of a ppeal are l egal i ssues whi ch can be admi tted in vi ew of the deci si on of the Hon'bl e Supreme Court i n the case of Nati onal Thermal Power Co. Ltd. v. CIT( Supra) . We therefore admi t the same.
226. As these addi ti onal grounds were not adjudi cated by the l ower authori ti es, we therefore re store the same t o the fil e of the AO for adjudi cati ng the same. Thus, both the addi ti onal grounds of appeal are all owed for stati sti cal purposes.
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227. In the result, the appeal of the assessee is partly allowed. (Orde r Pronounced i n the Court on 29 t h day of Apri l , 2019 at New Del hi) Sd/- Sd/-
(Bhavnesh Saini) (N. S. Saini)
Judicial Member Accountant Member
Dated: 29/04/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR